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- What is the additional assumption imposed by the CAPM model compared to the Markowitz procedures? O No taxes and transaction costs O Investors are rational, mean-variance optimizers O Investors can borrow or lend at a common risk-free rate, and short selling is allowed O Markets are perfectly competitive and investors are price takersWhich of the statements about the Arbitrage Pricing Theory MUST BE TRUE. I. There is only one systematic risk, the market risk. II. The market risk factor must be one of many systematic risk factors. III. Individual assets may have a positive or negative alpha A. I only B. II only C. III only D. None of the aboveThe weak form of the efficient market hypothesis implies that: CHOOSE ONE A. Investors can achieve abnormal returns, on average, using technical analysis, after adjusting for transaction costs and taxes. B. Insiders, such as specialists and corporate board members, cannot achieve abnormal returns on average. C. No one can achieve abnormal returns using market information. D. NONE OF THE ABOVE
- Q.Regarding the concept of opportunity cost, one affirmation is false. Which one is it? a. is not relevant in fundamental analysis b. is the rate of return given up by an investor, in order to gain another rate of return c. can play both the role of a discount rate or a capitalizing rate d. is relevant in determining the fair value of derivatives and corporate bonds e. is always computed as a percentage indicatorExplain the effect of D/E on asset returns, equity returns (assuming that cost of debt is not affected), asset beta and equity beta (assuming that debt beta is zero). Should an investor choose to invest in a stock of a company with high or low D/E, or why expected returns on these stocks are equivalent, although they are not equal?Choose the correct. Which of the following is not included in the assumption on which Myron Gorden proposed a model on Stock valuation: A. Retained earning the only source of financing B. Finite Life of the firm C. Taxes do not exist D. Constant rate of return on firms investment.
- The efficient market hypothesis says that Multiple Choice market prices reflect underlying asset values. individual investors should not participate in the financial markets. investors should expect to earn abnormal profits. financial managers can accurately time stock and bond sales. creative accounting can be used to inflate stock prices.Which of the following statements about the Fama-French three-factor model is wrong: A. Company size has an explanatory power in explaining the portfolio returns. B. Market risk has an explanatory power in explaining the portfolio returns. C. Book-to-market value companies has an explanatory power in explaining the portfolio returns. D. None of these factors. E. All of these factors.Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)? Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate Investors hold only efficient portfolios of traded securities. Investors have homogeneous expectations regarding the volatilities, correlation, and expected returns of securities. Investors have homogeneous risk averse preferences toward taking on risk.
- a. Why do investors believe that low price-earnings stocks are trading cheap in the market b. An investment strategy that seeks to create a portfolio of stocks with low price-earnings ratios is believed to be able to earn excess market returns. Explain why this is not the case in perfect capital market under certainty. c. Explain how in an imperfect capital market where there is risk, that a low price-earnings ratio strategy may be able to generate excess market returns.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.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 rational