Chapter 5 - Practice quizzes
These are multiple choice questions that should be used to practice your level of mastery of the material.
They are sample exercises and should not be interpreted as a complete set of exercises that can be created for this chapter material.
Please note that doing the required readings is essential.
Consider the CAPM. The risk-free rate is 1.65% and the expected return on the market is 12.26%. The correlation between the returns of asset A and the market is 0.99, the standard deviation of asset A returns is 5.27% and the standard deviation of market returns is 20.93%. What is the beta of asset A?
Considere o modelo do CAPM. A taxa isenta de risco é de 1.65% e a taxa de rendibilidade esperada para o mercado é de 12.26%. A correlação do activo A com o mercado é de 0.99, o desvio padrão das rendibilidades de A é de 5.27% e o desvio padrão do mercado é de 20.93%. Qual o beta do activo A?
✗4.73
✗22.6
✗0.05
✓0.25
\beta_a = \frac{cov(a,m)}{\sigma_m^2}\\ \beta_a = \frac{\rho_{a,b}\sigma_a\sigma_m}{\sigma_m^2}\\ \beta_a = 0.24927
Stocks A, B, C and D have betas of 0.1, 0.8, 0.9 and 1.3 respectively. What is the beta of an equally weighted portfolio of A, B and C?
Os activos A, B, C e D tem betas de 0.1, 0.8, 0.9 e 1.3 respectivamente. Qual o beta de uma carteira composta com os activos A, B e C em que estes têm todo o mesmo peso?
✓0.6
✗0.73
✗0.78
✗1.03
Read the problem carefully!
\beta_p = 1/3 \times 0.1 + 1/3 \times 0.8 + 1/3 \times 0.9 \\ \beta_p = 0.6
Consider the CAPM. The risk-free rate is 2% and the expected return on the market is 12.25%. What is the expected return on a stock with a beta of 1.1?
Considere o modelo do CAPM. A taxa isenta de risco é de 2% e a a taxa de rendibilidade esperada para o mercado é de 12.25%. Qual a rendibilidade esperada de um activo com o beta de 1.1?
✗11.28%
✓13.28%
✗13.48%
✗15.48%
E[r_i] = r_f + \beta_i(E[r_m]-r_f)\\ E[r_i] = 0.02 + 1.1\times(0.1225-0.02)\\ E[r_i] = 0.13275
Consider the CAPM. The risk-free rate is 1.06% and the expected return on the market is 15.22%. What is the beta on a stock with an expected return of 19.97%?
Considere o modelo do CAPM. A taxa isenta de risco é de 1.06% e a taxa de rendibilidade esperada para o mercado é de 15.22%. Qual o beta de um activo com a rendibilidade esperada de 19.97%?
✗1.24
✗1.31
✓1.34
✗1.41
E[r_i] = r_f + \beta_i(E[r_m]-r_f)\\ 0.1997 = 0.0106 + \beta_i(0.1522-0.0106)\\ \beta_i = 1.33545
Security A has an expected rate of return of 20.84% and a beta of 0.72. The risk-free rate is 4.83% and the market expected rate of return is 22.56%. According to the capital asset pricing model, security A is __________.
O activo A tem uma taxa de rendibilidade esperada de 20.84% e um beta de 0.72. A taxa isenta de risco é de 4.83% e a taxa de rendibilidade esperada para o mercado é de 22.56%. De acordo com o CAPM o activo A está __________.
✓underpriced / sub-avaliado
✗overpriced / sobre-avaliado
✗fairly priced / com preço adequado
✗no other answer is correct / nenhuma das outras respostas está correcta
Compare the expected return from the Capital Asset Pricing Model with the expected return of the asset provided in the exercise.
E[r_i] - r_f = \alpha_i + \beta_i\times (E[r_m]-r_f)\\ 0.2084 - 0.0483 = \alpha_i + 0.72 \times(0.2256 - 0.0483)\\ \alpha_i = 0.03244
Assets with positive alphas are underpriced.
Financial Investments, Chapter 5 - Practice quizzes