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1. When you find a stock with positive alpha, you should (chapter-9 capm) • Sell the stock because it is overpriced. • Sell the stock because it is underpriced. • Sell the stock short because it is underpriced. • Buy the stock because it is underpriced.

1. When you find a stock with positive alpha, you should (chapter-9 capm) • Sell the stock because it is overpriced. • Sell the stock because it is underpriced. • Sell the stock short because it is underpriced. • Buy the stock because it is underpriced.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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1. When you find a stock with positive alpha, you should (chapter-9 сapm) • Sell the stock because it is overpriced. • Sell the stock because it is underpriced. • Sell the stock short because it is underpriced. • Buy the stock because it is underpriced. 2. Juliet is a risk-averse investor. Romeo is a less risk-averse investor than Juliet. Therefore. • For the same return, Romeo tolerates higher risk than Juliet. • For the same return, Juliet tolerates higher risk than Romeo. • For the same risk, Romeo requires a higher rate of return than Juliet. • For the same risk, Juliet requires a lower rate of return than Romeo. 3. The graphical presentation of the best combinations of portfolio expected returns and standard deviations constructed form al available risky aseets is called the • Portfolio Opportunity set • Capital Allocation Line • Capital Market line • Efficient frontier 4. Given the capital allocation line, an investor's optimal complete portfolio is the portfolio that • Has the highest expected return. • Has the highest expected utility. • Has the least variance. • Has the highest Sharpe ratio 5. The single-index (market) model of security returns does not necessarily imply that • Correlation between a pair of securities arises due to correlation of these securities with the market portfolio. • Total risk of a security is the sum of systematic and non- systematic risk. • Covariance of returns on a pair of securities would depend on individual betas of these securities and variance of market return. • All securities should earn a zero alpha 6. The capital asset pricing model applies to • Portfolios of securities only. • Efficient portfolios of securities only. • All portfolios and individual securities. • Individual securities only.
Transcribed Image Text:1. When you find a stock with positive alpha, you should (chapter-9 сapm) • Sell the stock because it is overpriced. • Sell the stock because it is underpriced. • Sell the stock short because it is underpriced. • Buy the stock because it is underpriced. 2. Juliet is a risk-averse investor. Romeo is a less risk-averse investor than Juliet. Therefore. • For the same return, Romeo tolerates higher risk than Juliet. • For the same return, Juliet tolerates higher risk than Romeo. • For the same risk, Romeo requires a higher rate of return than Juliet. • For the same risk, Juliet requires a lower rate of return than Romeo. 3. The graphical presentation of the best combinations of portfolio expected returns and standard deviations constructed form al available risky aseets is called the • Portfolio Opportunity set • Capital Allocation Line • Capital Market line • Efficient frontier 4. Given the capital allocation line, an investor's optimal complete portfolio is the portfolio that • Has the highest expected return. • Has the highest expected utility. • Has the least variance. • Has the highest Sharpe ratio 5. The single-index (market) model of security returns does not necessarily imply that • Correlation between a pair of securities arises due to correlation of these securities with the market portfolio. • Total risk of a security is the sum of systematic and non- systematic risk. • Covariance of returns on a pair of securities would depend on individual betas of these securities and variance of market return. • All securities should earn a zero alpha 6. The capital asset pricing model applies to • Portfolios of securities only. • Efficient portfolios of securities only. • All portfolios and individual securities. • Individual securities only.
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