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 takers

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 takers

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

Problem 1PS

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All of the following statements about an efficient market are correct EXCEPT: a. All financial transactions have an NPV of equal to zero b. A skilled individual may have sustainable above market returns c. The investor is compensated properly for risk borne d. The investor does not receive abnormal returns consistently
Which of the following statements is false? A. A short sale allows investors to generate additional profits from a decline in a security’s price. B. One of underlying assumptions of technical analysis is that supply and demand are driven by both rational andirrational investor behavior. C. Investors get a margin call if the equity in a margin account rises above the required maintenance level. D. Technical analysis cannot modify price manipulations.
The 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
Which of the following is NOT true? O In risk-neutral valuation the risk-free rate is used to discount expected cash flows Options can be valued based on the assumption that investors are risk neutral O None of these (i.e. all are TRUE) O In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate O Risk-neutral valuation provides prices that are only correct in a world where investors are risk- neutral ◄ Previous Next ▸
Subject :- Accouting
Efficient Markets Hypothesis imply that investment strategies purely based on publicly available information cannot systematically generate positive abnormal returns. This statement is O True O False
One approach for using multifactor models is to use factors that capture systematic risk. Which of the following is not a common factor used in this approach? Market capitalization O Unexpected changes in real GDP O Unexpected changes in inflation Yield curve shifts Consumer confidence
(1) Why is the risk-free return independent of the state of the economy? Do T-bills promise a completely risk-free return? (2) Why are High Tech’s returns expected to move with the economy whereas Collections’ are expected to move counter to the economy? Calculate the expected rate of return on each alternative and fill in the row for in the table. You should recognize that basing a decision solely on expected returns is appropriate only for risk-neutral individuals. Because the beneficiaries of the trust, like virtually everyone, are risk averse, the riskiness of each alternative is an important aspect of the decision. One possible measure of risk is the standard deviation of returns. (1) Calculate this value for each alternative, and fill in the row for σ in the table. (2) What type of risk does the standard deviation measure? (3) Draw a graph that shows roughly the shape of the probability distributions for High Tech, U.S. Rubber, and T-bills. Suppose you suddenly remembered that…
If the weakest form of market efficiency holds, then security prices reflect all information found in past prices and volume. Thus, traditional "technical analysis" will not work. Group of answer choices True False
The general arbitrage pricing theory (APT) differs from thesingle-factor capital asset pricing model (CAPM) because theAPT: A. Places more emphasis on market risk.B. Minimizes the importance of diversification.C. Recognizes multiple unsystematic risk factors.D. Recognizes multiple systematic risk factors.
Which of the following statements are true if the efficient market hypothesis holds?a. It implies that future events can be forecast with perfect accuracy.b. It implies that prices reflect all available information.c. It implies that security prices change for no discernible reason.d. It implies that prices do not fluctuate.
According to Capital Asset Pricing theory (CAPM), in a competitive marketplace: Group of answer choices A. only systematic risk is rewarded. B. only diversifiable risk is rewarded. C. all types of risks are rewarded. D. no risk is rewarded.

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