Question

Please choose a letter answer and explain the answer please.

1. According to the CAPM the expected return of a zero beta security is                     .

1. the market rate of return
2. zero
3. a negative rate of return
4. the risk-free rate

2. The arbitrage pricing theory differs from the capital asset pricing model because the APT

                  .

1. places more emphasis on market risk
2. minimizes the importance of diversification
3. recognizes multiple unsystematic risk factor
4. recognizes multiple systematic risk factors

3. If you believe in the                        form of the Efficient Market Hypothesis (EMH), you believe that stock prices reflect all publicly available information but not information that is available only to insiders.

1. semi-strong
2. strong
3. weak
4. none of the above
5. a and b

4. Proponents of the EMH think that when an investor charts stock prices she should

1. focus on relative strength
2. focus on resistance levels
3. focus on support levels
4. stop wasting her time on a futile activity

Answer 1

1. According to the CAPM the expected return of a zero beta security is: D Risk free rate

CAP E(R) Expected return = Rf + Beta *(Rm-Rf) Where Rf is risk free rate Rm is market rate

Thus Beta = 0 implies E(R) = Rf +0=Rf

2. The arbitrage pricing theory differs from the capital asset pricing model because the APT: D recognizes multiple systematic risk factors

3.If you believe in the                        form of the Efficient Market Hypothesis (EMH), you believe that stock prices reflect all publicly available information but not information that is available only to insiders: A semi strong (definition of semi strong)

4.Proponents of the EMH think that when an investor charts stock prices she should: D stop wasting her time on a futile activity as the market is efficient and no fundamental analysis will help the investor to make any profit as all information is avaliable to all market participants.