Q1. A basic assumption of the capital asset pricing model (CAPM) is that there are no transaction costs. If this assumption is relaxed, which of the following would be the least likely to occur? A) All securities will plot very close to the security market line. B) Diversification benefits will be realized up to the point that they offset transactions costs. C) Each investor can have a unique view of a security market line.
Q2. 21st Century Investments manages a portfolio, Z, that has zero correlation with the market index and examines the prospects for AMI Enterprises, a manufacturer of laptop batteries. 21st Century Investments derives the following market forecasts: - Expected return on portfolio Z - 8%
- Expected return on the market index - 14%
- Risk-free rate - 5%
- AMI beta - 1.50
Using the zero-beta form of the capital asset pricing model (CAPM), the equilibrium expected return for AMI is closest to: A) 17.0%. B) 18.5%. C) 14.0%.
Q3. Andrew Howell uses the security market line (SML) to make investment decisions. His firm incurs 2% transaction costs on all purchases. How does the existence of the 2% transaction cost change the intercept and slope of the SML for stock purchases faced by Howell’s firm? Intercept Slope
A) Increase by 2% No change B) No change Increase by 2% C) No change No change
Q4. The security market line (SML) will resemble a band with fairly tight upper and lower bounds if two of the following assumptions are made. Which of the following should not be included in this list?
A) Unequal borrowing and lending rates. B) Differences in investor tax brackets. C) Heterogeneous investor expectations.
Q5. Which of the following assumptions associated with the capital asset pricing model (CAPM), when relaxed, will be least likely to result in turning the security market line (SML) into a band rather than a line? A) Equal borrowing and lending rates. B) A single holding period.
C) No transaction costs.
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发表于 2009-1-22 11:05
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