An investor takes as large a position as possible when an equilibrium price relationship is violated. This is an example of:a. A dominance argument.b. The mean-variance efficient frontier.c. Arbitrage activity.d. The capital asset pricing model.
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An investor takes as large a position as possible when an
a. A dominance argument.
b. The mean-variance efficient frontier.
c. Arbitrage activity.
d. The
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- An investor takes as large a position as possible when an equilibrium pricerelationship is violated. This is an example of:A. A dominance argument.B. The mean-variance efficient frontier.C. Arbitrage activity.D. The capital asset pricing model.In contrast to the capital asset pricing model, arbitrage pricing theory:a. Requires that markets be in equilibrium.b. Uses risk premiums based on micro variables.c. Specifies the number and identifies specific factors that determine expected returns.d. Does not require the restrictive assumptions concerning the market portfolio.In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by ________. the level of the security market line the slope of the security market line the difference between the beta and the risk-free rate the risk-free rate
- Evaluate the following statement: If the financial market is frictionless and complete, the asset with higher expected return also exhibits higher return volatility (i.e., standard deviation of returns).The underlying assumptions of technical analysis are that A.price move in predictable patterns B. Market value is determined by market news C. Investors are rationalCarefully explain the Arbitrage Pricing Theory (APT). What is the main assumption the APT is built on? (b) With regard to market efficiency, what is meant by the term "anomaly"? Give two examples of market anomalies and explain why each is considered as an anomaly.
- Suppose the solid line represents the capital market line that results from a CAPM equilibrium and the dotted curves represent indifference curves for a given individual. Which of the following is correct if point M corresponds to the market portfolio? Group of answer choices The individual optimally holds only the market portfolio, M. The individual optimally holds portfolio B which can be partially characterized by a long position in the riskless asset. The individual optimally holds portfolio B which can be partially characterized by a short position in the riskless security The individual optimally holds portfolio A which can be partially characterized by a long position in the riskless security. None of the above.An efficient capital market is best defined as a market in which security prices reflect which one of the following? Multiple Choice A Current inflation B A risk premium C All available information D The historical arithmetic rate of return E The historical geometric rate of returnWhich of the following statements is false? A. Historical VaR simulation involves using past data as a guide to what will happen in the future. B. Illiquidity is observed when there is a large difference between the offered sale price and the bid price. C. Yield spared is reflected in the size of the bid-ask spreads. D. The stressed VaR is based on how market variables have moved during a particularly adverse time period.
- What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumedDistinguish between the ‘market period’ (the ‘short-short run’), the ‘short run’ and the ‘long run.’ Under what conditions will the long run equilibrium in a perfectly competitive market involve successive equilibria that exhibits an increase in both the equilibrium price and the equilibrium quantity? Explain using graphical analysis where appropriate, making sure to define the key terms and relationships you use in your answer.This is a generalized framework for analyzing the relationship between risk and return: a. capital asset pricing model b. diversification theory c. capital market line d. arbitrage pricing theory