Reading 66: Portfolio Concepts-LOS n 习题精选 center, possibly, investor, contrast, 2011

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Session 18: Portfolio Management: Capital Market Theory and the Portfolio Management Process
Reading 66: Portfolio Concepts

LOS n: Compare and contrast the conclusions and the underlying assumptions of the CAPM and the APT models, and explain why an investor can possibly earn a substantial premium for exposure to dimensions of risk unrelated to market movements.

 

 

Investors may be able earn a risk premium for holding dimensions of risk unrelated to market movements if:

A) the market is informationally efficient.

B) there is more than one source of systematic risk.

C) unsystematic risk can be diversified away in portfolios.

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Multifactor models that have more than one source of systematic risk allow us to capture other dimensions of risk besides overall market risk. Investors with unique circumstances that differ from the average investor may want to hold portfolios tilted away from the market portfolio in order to hedge or speculate on factors like recession risk, interest rate risk or inflation risk. An investor with lower-than-average exposure to recession risk, for example, can earn a premium by creating greater-than-average exposure to the recession risk factor. In effect, he earns a risk premium determined by the average investor by taking on a risk he doesn’t care about as much as the average investor does.

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In the context of multi-factor models, investors with lower-than-average exposure to recession risk (e.g. those without labor income) can earn a risk premium for holding dimensions of risk unrelated to market movements by creating equity portfolios with:

A) greater-than-average market risk exposure.

B) greater-than-average exposure to the recession risk factor.

C) less-than-average exposure to the recession risk factor.

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Multifactor models allow us to capture other dimensions of risk besides overall market risk. Investors with unique circumstances different than the average investor may want to hold portfolios tilted away from the market portfolio in order to hedge or speculate on factors like recession risk, interest rate risk or inflation risk. An investor with lower-than-average exposure to recession risk can earn a premium by creating greater-than-average exposure to the recession risk factor. In effect, he earns a risk premium determined by the average investor by taking on a risk he doesn’t care about as much as the average investor does.

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Which of the following models is NOT consistent with the concept that investors can earn an additional risk premium for holding dimensions of risk unrelated to market movements?

A) The arbitrage pricing theory.

B) Macroeconomic multi-factor models.

C) The capital asset pricing model (CAPM).

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The CAPM suggests that security returns can be captured in a one-factor (market) model. Multifactor models allow us to capture other dimensions of risk besides overall market risk. Investors with unique circumstances that differ from the average investor may want to hold portfolios tilted away from the market portfolio in order to hedge or speculate on factors like recession risk, interest rate risk or inflation risk. In doing so they are able to earn a substantial premium for holding dimensions of risk unrelated to market movements.

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Which of the following statements regarding the arbitrage pricing theory (APT) and the capital asset pricing model (CAPM) is least accurate? APT:

A) does not identify its risk factors.

B) and CAPM assume all investors hold the market portfolio.

C) requires fewer assumptions than CAPM.

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CAPM assumes that all investors hold the market portfolio, APT does not make this assumption.

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Which of the following is an implication of the capital asset pricing model for investor’s portfolio decisions?

A) All investors will hold some combination of a broadly based market index and the risk-free asset.

B) Less risk-averse investors will hold less of a broadly based index and more of the risk-free asset.

C) Less risk-averse investors will overweight high-beta stocks relative to the market portfolio.

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The CAPM suggests that all investors should hold some combination of the market portfolio and the risk-free asset. Less risk-averse investors will hold more of the market portfolio (and move farther up the CML) and more risk-averse investors will hold more of the risk-free asset (and move farther down the CML).