ch02 risk and return

Chapter 10Return and Risk: The Capital-Assets-Pricing Model Multiple Choice Questions1. When a security is added to a portfolio the appropriate return and risk contributions areA) the expected return of the asset and its standard deviation.B) the expected return and the variance.C) the expected return and the beta.D) the historical return and the beta.E) these both can not be measured.Answer: C Difficulty: Medium Page: 2552. When stocks with the same expected return are combined into a portfolioA) the expected return of the portfolio is less than the weighted average expected return of thestocks.B) the expected return of the portfolio is greater than the weighted average expected return of thestocks.C) the expected return of the portfolio is equal to the weighted average expected return of thestocks.D) there is no relationship between the expected return of the portfolio and the expected return ofthe stocks.E) None of the above.Answer: C Difficulty: Easy Page: 2613. Covariance measures the interrelationship between two securities in terms ofA) both expected return and direction of return movement.B) both size and direction of return movement.C) the standard deviation of returns.D) both expected return and size of return movements.E) the correlations of returns.Answer: B Difficulty: Medium Page: 258-259Use the following to answer questions 4-5:GenLabs has been a hot stock the last few years, but is risky. The expected returns for GenLabs are highly dependent on the state of the economy as follows:State of Economy Probability GenLabs ReturnsDepression .05 -50%Recession .10 -15Mild Slowdown .20 5Normal .30 15%Broad Expansion .20 25Strong Expansion .15 404. The expected return on GenLabs is:A) 3.3%B) 8.5%C) 12.5%D) 20.5%E) None of the above.Answer: C Difficulty: Medium Page: 256Rationale:E(r) = .05(-.5) + .10(-.15) + .2(.05) + .3(.15) + .2(.25) + .15(.40) = .125 = 12.5%5. The variance of GenLabs returns isA) .0207B) .0428C) .0643D) .0733E) None of the above.Answer: B Difficulty: Medium Page: 256-257Rationale:.05(-.50 - .125)2 + .1(-.15 - .125)2 + .2(.05 - .125)2 + .3(.15 - .125)2 + .2(.25 - .125)2 + .15(.40 - .125)2 = .04286. The standard deviation of GenLabs returns isA) .0845B) .2069C) .3065D) .3358E) None of the above.Answer: B Difficulty: Medium Page: 256-257Rationale:.05(-.50 - .125)2 + .1(-.15 - .125)2 + .2(.05 - .125)2 + .3(.15 - .125)2 + .2(.25 - .125)2 + .15(.40 - .125)2 = .0428(.0428) = .20697. The correlation between two stocksA) can take in positive values.B) can take on negative values.C) cannot be greater than 1.D) cannot be less than -1.E) All of the above.Answer: E Difficulty: Medium Page: 260-2618. If the correlation between two stocks is –1, the returnsA) generally move in the same direction.B) move perfectly opposite one another.C) are unrelated to one another as it is < 0.D) have standard deviations of equal size but opposite signs.E) None of the above.Answer: B Difficulty: Medium Page: 2609. Stock A has an expected return of 20%, and stock B has an expected return of 4%. However, therisk of stock A as measured by its variance is 3 times that of stock B. If the two stocks arecombined equally in a portfolio, what would be the portfolio's expected return?A) 4%B) 12%C) 20%D) Greater than 20%E) Need more information to answer.Answer: B Difficulty: Medium Page: 262Rationale:Rp = 20(.5) + 4(.5) = 12%Use the following to answer questions 10-14:Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a downhill skiing facility, while DS is a tour company that specializes in walking tours and camping. The equally likely returns on each company over the next year is expected to be:Economy Idaho Slopes Dakota SteppesStrong Downturn -10% 2%Mild Downturn - 4% 7%Slow Growth 4% 6%Moderate Growth 12% 4%Strong Growth 20% 4%10. The mean expected returns of Idaho Slopes and Dakota Steppes areA) 4.0%; 6.0%B) 4.4%; 4.6%C) 5.5%; 5.8%D) 10.0%; 6.0%E) None of the aboveAnswer: B Difficulty: Medium Page: 256Rationale:IS = (-10%-4%+4%+12%+20%)/5 = 4.4%DS = (2%+7%+6%+4%+4%)/5 = 4.6%11. The variances of Idaho Slopes and Dakota Steppes areA) .0145; .00038B) .011584; .000304C) .006454; .000154D) .0008068; .000193E) None of the aboveAnswer: B Difficulty: Hard Page: 256-257Rationale:2IS = .2 = 0.0115842DS = .2 = .00030412. The covariance between the Idaho Slopes and Dakota Steppes returns isA) .00187B) .00240C) .00028D) .000056E) None of the aboveAnswer: C Difficulty: Hard Page: 258-259Rationale:ISDS = = .0002813. If Idaho Slopes and Dakota Steppes are combined in a portfolio with 50% invested in each, theexpected return and risk would be?A) 4.5%; 0%B) 4.5%; 5.48%C) 5.0%; 0%D) 5.625%; 37.2%E) 8.0%; 8.2%Answer: B Difficulty: Hard Page: 261-262Rationale:Rp = .5(.044) + .5(.046) = .045 = 4.5%p = .5 = .05477 = 5.48%14. The correlation between stocks A and B is theA) covariance between A and B divided by the standard deviation of A times the standarddeviation of B.B) standard deviation A divided by the standard deviation of B.C) standard deviation of B divided by the covariance between A and B.D) variance of A plus the variance of B dividend by the covariance.E) None of the above.Answer: A Difficulty: Medium Page: 26015. A portfolio is entirely invested into Buzz's Bauxite Boring Equity, which is expected to return 16%,and Zum's Inc. bonds, which are expected to return 8%. Sixty percent of the funds are invested in Buzz's and the rest in Zum's. What is the expected return on the portfolio?A) 6.4%B) 9.6%C) 12.8%D) 24.2%E) Need additional information.Answer: C Difficulty: Medium Page: 262Rationale:R p = .60(R Buzz)+.40(R Zum) = .60(16%) + .40(8%) = 12.8%16. You have plotted the data for two securities over time on the same graph, ie., the month return ofeach security for the last 5 years. If the pattern of the movements of the two securities rose and fell as the other did, these two securities would haveA) no correlation at all.B) a weak negative correlation.C) a strong negative correlation.D) a strong positive correlation.E) one can not get any idea of the correlation from a graph.Answer: D Difficulty: Easy Page: 26017. If the covariance of stock 1 with stock 2 is -.0065, then what is the covariance of stock 2 with stock1?A) -.0065B) +.0065C) greater than +.0065D) less than -.0065E) Need additional information.Answer: A Difficulty: Medium Page: 258-25918. If you have a portfolio of two risky stocks which turns out to have no diversification benefit. Thereason you have no diversification is the returnsA) are too small.B) move perfectly opposite of one another.C) are too large to offset.D) move perfectly with one another.E) are completely unrelated to one another.Answer: D Difficulty: Easy Page: 26419. A portfolio will usually containA) one riskless asset.B) one risky asset.C) two or more assets.D) no assets.E) None of the above.Answer: C Difficulty: Easy Page: 26120. The variance of Stock A is .004, the variance of the market is .007 and the covariance between thetwo is .0026. What is the correlation coefficient?A) .9285B) .8542C) .5010D) .4913E) .3510Answer: D Difficulty: Medium Page: 260Rationale:Standard deviation of B = .06325, Standard deviation of the market = .08366CORR = COV/(SDA)(SDM) = .0026/(.06325)(.08366) = .491321. If the correlation between two stocks is +1, then a portfolio combining these two stocks will have avariance that isA) less than the weighted average of the two individual variances.B) greater than the weighted average of the two individual variances.C) equal to the weighted average of the two individual variances.D) less than or equal to average variance of the two weighted variances, depending on otherinformation.E) None of the above.Answer: C Difficulty: Medium Page: 26422. The opportunity set of portfolios isA) all possible return combinations of those securities.B) all possible risk combinations of those securities.C) all possible risk-return combinations of those securities.D) the best or highest risk-return combination.E) the lowest risk-return combination.Answer: C Difficulty: Medium Page: 26723. A portfolio has 50% of its funds invested in Security One and 50% of its funds invested in SecurityTwo. Security One has a standard deviation of 6. Security Two has a standard deviation of 12. The securities have a coefficient of correlation of .5. Which of the following values is closest toportfolio variance?A) .0027B) .0063C) .0095D) .0104E) One must have covariance to calculate expected value.Answer: B Difficulty: Medium Page: 262Rationale: Var. = .52(.06)2 + .52(.12)2 + 2(.5)(.5)(.5)(6)(12) = .0009 + .0036 + .0018 = .006324. A portfolio has 25% of its funds invested in Security C and 75% of its funds invested in Security D.Security C has an expected return of 8% and a standard deviation of 6. Security D has an expected return of 10% and a standard deviation of 10. The securities have a coefficient of correlation of .6.Which of the following values is closest to portfolio return and variance?A) .090; .0081B) .095; .001675C) .095; .0072D) .100; .00849E) Cannot calculate without the number of covariance terms.Answer: C Difficulty: Medium Page: 261-262Rationale:E(R) = .25(.08) + .75(.10) = .095 = 9.5%Variance = .252(.06)2 + .752(.10)2 + 2(.25)(.75)(.06)(.60)(.10) = .007225. When many assets are included in a portfolio or index the risk of the portfolio or index will beA) greater than the risk of the securities because the correlations are greater than 1.B) equal to the risk of the securities because the correlations are equal to 1.C) less than the risk of the securities because the correlations are usually less than 1.D) unaffected by the risk of securities because their correlations are less than 1.E) None of the above.Answer: C Difficulty: Medium Page: 26426. The efficient set of portfoliosA) contains the portfolio combinations with the highest return for a given level of risk.B) contains the portfolio combinations with the lowest risk for a given level of return.C) is the lowest overall risk portfolio.D) Both A and BE) Both A and C.Answer: D Difficulty: Medium Page: 26727. Diversification can effectively reduce risk. Once a portfolio is diversified the type of riskremaining isA) individual security risk.B) riskless security risk.C) risk related to the market portfolio.D) total standard deviations.E) None of the above.Answer: C Difficulty: Easy Page: 27428. For a highly diversified equally weighted portfolio with a large number of securities, the portfoliovariance isA) the average covariance.B) the average expected value.C) the average variance.D) the weighted average expected value.E) the weighted average variance.Answer: A Difficulty: Medium Page: 273-27429. A well-diversified portfolio has negligibleA) expected return.B) systematic risk.C) unsystematic risk.D) variance.E) Both C and D.Answer: C Difficulty: Easy Page: 27430. The CML is the pricing relationship betweenA) efficient portfolios and beta.B) the risk-free asset and standard deviation of the portfolio return.C) the optimal portfolio and the standard deviation of portfolio return.D) beta and the standard deviation of portfolio return.E) None of the above.Answer: C Difficulty: Medium Page: 27931. The SML is the equilibrium pricing relationship forA) efficient portfolios.B) single securities.C) inefficient portfolios.D) All of the above.E) None of the above.Answer: D Difficulty: Easy Page: 285-28632. A typical investor is assumed to beA) a fair gambler.B) a gambler.C) a single security holder.D) risk averse.E) risk neutral.Answer: D Difficulty: Medium Page: 27533. You've owned a share of stock for 6 years. It returned 5% in 3 of those years and -5% in the other3. What was the variance?A) 0B) .0015C) .0030D) .0150E) .0400Answer: C Difficulty: Medium Page: 256-257Rationale:VAR= {(5-0)2 + (5-0)2 +(5-0)2 + (5-0)2 +(5-0)2 + (5-0)2/5 - 3034. The total number of variance and covariance terms in portfolio is N2. How many of these would be(including non-unique) covariance's?A) NB) N2C) N2 - ND) N2 - N/2E) None of the above.Answer: C Difficulty: Medium Page: 27235. Total risk can be divided intoA) standard deviation and variance.B) standard deviation and covariance.C) portfolio risk and beta.D) systematic risk and unsystematic risk.E) portfolio risk and covariance.Answer: D Difficulty: Easy Page: 27436. Beta measuresA) the ability to diversify risk.B) how an asset covaries with the market.C) the actual return on an asset.D) the standard of the assets' returns.E) All of the above.Answer: B Difficulty: Medium Page: 28337. The dominant portfolio with the lowest possible risk measures isA) the efficient frontier.B) the minimum variance portfolio.C) the upper tail of the efficient set.D) the tangency portfolio.E) None of the above.Answer: B Difficulty: Medium Page: 26638. The measure of beta associates most closely withA) idiosyncratic risk.B) risk-free return.C) systematic risk.D) unexpected risk.E) unsystematic risk.Answer: C Difficulty: Easy Page: 26939. An efficient set of portfolios isA) the complete opportunity set.B) the portion of the opportunity set below the minimum variance portfolio.C) only the minimum variance portfolio.D) the dominant portion of the opportunity set.E) only the maximum return portfolio.Answer: D Difficulty: Medium Page: 27040. A stock with a beta of zero would be expected to have a rate of return equal toA) the risk-free rate.B) the market rate.C) the prime rate.D) the average AAA bond.E) None of the above.Answer: A Difficulty: Medium Page: 28541. The combination of the efficient set of portfolios with a riskless lending and borrowing rate resultsinA) the capital market line which shows that all investors will only invest in the riskless asset.B) the capital market line which shows that all investors will invest in a combination of theriskless asset and the tangency portfolio.C) the security market line which shows that all investors will invest in the riskless asset only.D) the security market line which shows that all investors will invest in a combination of theriskless asset and the tangency portfolio.E) None of the above.Answer: B Difficulty: Medium Page: 27842. According to the CAPMA) the expected return on a security is negatively and non-linearly related to the security's beta.B) the expected return on a security is negatively and linearly related to the security's beta.C) the expected return on a security is positively and linearly related to the security's variance.D) the expected return on a security is positively and non-linearly related to the security's beta.E) the expected return on a security is positively and linearly related to the security's beta.Answer: E Difficulty: Easy Page: 28243. The diversification effect of a portfolio of two stocksA) increases as the correlation between the stocks declines.B) increases as the correlation between the stocks rises.C) decreases as the correlation between the stocks rises.D) Both A and C.E) None of the above.Answer: A Difficulty: Medium Page: 26644. The elements along the diagonal of the Variance / Covariance matrix areA) covariances.B) security weights.C) security selections.D) variances.E) None of the above.Answer: D Difficulty: Medium Page: 27245. The elements in the off-diagonal positions of the Variance / Covariance matrix areA) covariances.B) security selections.C) variances.D) security weights.E) None of the above.Answer: A Difficulty: Medium Page: 27246. The separation principle states that an investor willA) choose any efficient portfolio and invest some amount in the riskless asset to generate theexpected return.B) choose an efficient portfolio based on individual risk tolerance or utility.C) never choose to invest in the riskless asset because the expected return on the riskless asset islower over time.D) invest only in the riskless asset and tangency portfolio choosing the weights based onindividual risk tolerance.E) All of the above.Answer: D Difficulty: Medium47. The beta of a security is calculated byA) dividing the covariance of the security with the market by the variance of the market.B) dividing the correlation of the security with the market by the variance of the market.C) dividing the variance of the market by the covariance of the security with the market.D) dividing the variance of the market by the correlation of the security with the market.E) None of the above.Answer: A Difficulty: Medium Page: 28348. If investors possess homogeneous expectations over all assets in the market portfolio, when risklesslending and borrowing is allowed, the market portfolio is defined toA) be the same portfolio of risky assets chosen by all investors.B) have the securities weighted by their market value proportions.C) be a diversified portfolio.D) All of the above.E) None of the above.Answer: D Difficulty: Medium Page: 28049. A portfolio contains two assets. The first asset comprises 40% of the portfolio and has a beta of 1.2.The other asset has a beta of 1.5. The portfolio beta isA) 1.35B) 1.38C) 1.42D) 1.50E) 1.55Answer: B Difficulty: Medium Page: 287Rationale:βp = .4(1.2)+.6(1.5)=1.3850. A portfolio contains four assets. Asset 1 has a beta of .8 and comprises 30% of the portfolio. Asset2 has a beta of 1.1 and comprises 30% of the portfolio. Asset3 has a beta of 1.5 and comprises 20%of the portfolio. Asset 4 has a beta of 1.6 and comprises the remaining 20% of the portfolio. If the riskless rate is expected to be 3% and the market risk premium is 6%, what is the beta of theportfolio?A) 0.80B) 1.10C) 1.19D) 1.25E) 1.40Answer: C Difficulty: Hard Page: 287Rationale:βp = .3(.8)+.3(1.1)+.2(1.5)+.2(1.6)=1.1951. The characteristic line is graphically depicted asA) the plot of the relationship between beta and expected return.B) the plot of the returns of the security against the beta.C) the plot of the security returns against the market index returns.D) the plot of the beta against the market index returns.E) None of the above.Answer: C Difficulty: Medium Page: 281-28252. Recent research by Fama and French calls into questions the CAPM because they findA) average security returns are negatively related to the firm P/E and M/B ratios.B) P/E and M/B are only two of several factors explaining average returns.C) a weak relationship between average returns and beta for 1941 to 1990 and no relationshipfrom 1963 to 1990.D) Both A and C.E) Both B and C.Answer: D Difficulty: Hard Page: 29553. Further study to evaluate the Fama-French results and the CAPM are needed becauseA) P/E and M/B may be two of a large set of factors which were found due to hindsight bias.B) A positive relationship is found over the period 1927 to 1990 indicating more than 50 years ofdata are necessary for proper CAPM testing.C) Annual data based estimates of beta show positive relationships to average returns, whilemonthly betas do not.D) All of the above.E) None of the above.Answer: D Difficulty: Hard Page: 295-296Essay Questions54. Given the following data:Year Returns – Ink, Inc. Returns – S & P 500 1 10% 15% 2 0% -2% 3 -5% -2% 4 15 10% 5 5% 0%Calculate the covariance between Ink and the S&P 500.Difficulty: Hard Page: 258-259 Answer:R I IRR I - IR R SP SP R R SP –SP R.10 .05 .05 .15 .042.108 .00 .05 -.05 -.02 .042 -.062 -.05 .05 -.10 -.02 .042 -.062 .15 .05 .10 .10 .042 .058 .05.05.00 .00 .0421-.042(R I - I R ) x (R SP –SP R ).05 x.108 .0054 -.05 x -.062 .0031 -.10 x -.062 .0062 .10 x .058 .00580 x -.402.0205/5=.004155. A portfolio is made up of 75% of stock 1, and 25% of stock 2. Stock 1 has a variance of .08, andstock 2 has a variance of .035. The covariance between the stocks is -.001. Calculate both the variance and the standard deviation of the portfolio. Difficulty: Medium Page: 262 Answer: σ² = (.75)²(.08) + (.25)²(.035) + 2(.25)(.75)(-.001) = .0468 σ = .216356. Illustrate and explain the impact of adding securities to a portfolio assuming the securities are ofaverage correlation with each other. Difficulty: Medium Page: 274Answer:As N increases, portfolio risk decreases. As N gets large, portfolio risk approaches the market risk.For details please refer to the text Figure 10.7 page 274.57. Given the following information on 3 stocks:Stock A Stock B Stock C T-Bills Market PortExp. Return .19 .15 .09 .07 .18Variance .0200 .1196 .0205 .0000 .0064Covariance withMkt Portfolio .007 .0045 .0013 .0000 .0064Using the CAPM, calculate the expected return for Stock's A, B, and C. Which stocks would you recommend purchasing?Difficulty: Hard Page: 285-287Answer:B A = .0070/.0064 = 1.094; ra = .07 + (.18-.07)1.094 = .1903B B = .0045/.0064 = 0.703; rb = .07 + (.18-.07)0.703 = .1473B C = .0013/.0064 = 0.203; rc = .07 + (.18-.07)0.203 = .0.923Indifferent on A as .1903 = .19.Would buy B as .15 > .1473.Would not buy C as .09 < .0923.58. Returns for the IC Company and for the S&P 500 Index over the previous 4-year period are givenbelow:Year IC Co. S & P 5001 30% 17%2 0% 20%3 -8% 7%4 0% 5%What are the average returns on IC and on the S&P 500 index? If you had invested $1.00 in IC, how much would you have had after 4 years? What is the correlation between the returns on IC and the S&P?Difficulty: Medium Page: 259Answer:Average return is 22/4 = 5.5% for IC and 49/4 = 12.25% for the S&P.After 4 years $1.00 in IC grows to $1.00(1.30)(.92) = 1.196 = $1.20.For n=4σIC = 14.52, σSP = 6.38, σIC,SP = 46.125, determining ( r IC,SP ) =0.498For n-1 = 3σIC = 16.76 σSP = 7.37 σIC,SP = 61.50 determining (r IC,SP ) =. 49859. Draw and explain the relationship between the opportunity set for a two asset portfolio when thecorrelation is: [Choose from -1, -.5, 0, +.5, and +1] Difficulty: Hard Page: 267-268 Answer: ∙ Opportunity set is made up of a portfolio of two asset combinations with weights from (0,100) to (100,0). ∙ Upper point--maximum return portfolio, 100% in highest return sec. ∙ Inflection point--minimum variance portfolio ∙ See diagram, pg. 267MRPStd. DeviationRpOpportunity SetBetween the MVP (Minimum Variance Portfolio) andthe MRP (Maximum Return Portfolio) is the efficient set of portfolios.60. The diagram below represents an opportunity set for a two asset combination. Indicate the correctefficient set with labels; explain why it is so. Difficulty: Hard Page: 267-268 Answer: ∙ Efficient set is portion of opportunity set that dominates. ∙ Provides maximum return for given risk or converse.MRPStd. DeviationRpOpportunity SetA is on the efficient frontier with the best return to risk combination. Portfolioson the frontier dominate all other portfolios. A dominates both B and C. B has a higher standard deviation for the same return while C has a lower return for the same standard deviation.ABCXX。

⾦融市场与机的构Madura第九版题库ch11Chapter 11Stock Valuation and Risk1. The common price-earnings valuation method applied the ______ price-earnings ratio to ________earnings per share in order to value the firm’s stock.A) firm’s; industryB) firm’s; firm’sC) average industry; industryD) average industry; firm’sANSWER: D2. A firm is expected to generate earnings of $2.22 per share next year. The mean ratio of share price toexpected earnings of competitors in the same industry is 15. Based on this information, the valuation of the firm’s shares based on the price-earnings (PE) method isA) $2.22.B) $6.76.C) $33.30.D) none of the aboveANSWER: C3. The PE method to stock valuation may result in an inaccurate valuation for a firm if errors are madein forecasting the firm’s future earnings or in choosing the industry composite used to derive the PE ratio.A) TrueB) FalseANSWER: A4. Bolwork Inc. is expected to pay a dividend of $5 per share next year. Bolwork’s dividends areexpected to grow by 3 percent annually. The required rate of return for Bolwork stock is 15 percent.Based on the dividend discount model, a fair value for Bolwork stock is $_______ per share.A) 33.33B) 166.67C) 41.67D) 60.00ANSWER: C5. Protsky Inc. just paid a divid end of $2.20 per share. The dividend growth rate for Protsky’s dividendsis 3 percent per year. If the required rate of return on Protsky stock is 12 percent, the stock should be valued at $_______ pershare according to the dividend discount model.A) 24.44B) 25.182 Stock Valuation and RiskC) 18.88D) 75.53ANSWER: B6. The limitations of the dividend discount model are more pronounced when valuing stocksA) that pay most of their earnings as dividends.B) that retain most of their earnings.C) that have a long history of dividends.D) that have constant earnings growth.ANSWER: B7. Hancock Inc. retains most of its earnings. The company currently has earnings per share of $11.Hancock expects its earnings to grow at a constant rate of 2 percent per year. Furthermore, theaverage PE ratio of all other firms in Hancock’s industry is 12. Hancock is expected to pay dividends per share of $3.50 during each of the next three years. If investors require a 10 percent rate of return on Hancock stock, a fair price for Hancock stock today is $________.A) 113.95B) 111.32C) 105.25D) none of the aboveANSWER: A8. When evaluating stock performance, ______ measures variability that is systematically related tomarket returns; ______ measures total variabili ty of a stock’s returns.A) beta; standard deviationB) standard deviation; betaC) intercept; betaD) beta; error termANSWER: A9. The ___________ is commonly used as a proxy for the risk-free rate in the Capital Asset PricingModel.A) Treasury bond rateB) prime rateC) discount rateD) federal funds rateANSWER: A10. Arbitrage pricing theory (APT) suggests that a stock’s price is influenced only by a stock’s beta.A) TrueB) FalseANSWER: BStock Valuation and Risk 3 11. Stock prices of U.S. firms primarily involved in exporting are likely to be ________ affected by aweak dollar and __________ affected by a strong dollar.A) favorably; adverselyB) adversely; adverselyC) favorably; favorablyD) adversely; favorablyANSWER: A12. A weak dollar may enhance the value of a U.S. firm whose sales are dependent on the U.S. economy.A) TrueB) FalseANSWER: A13. The January effect refers to the __________ pressure on ______ stocks in January of every year.A) downward; largeB) upward; largeC) downward; smallD) upward; smallANSWER: D14. The expected acquisition of a firm typically results in ____________ in the target’s stock price.A) an increaseB) a decreaseC) no changeD) none of the aboveANSWER: A15. The _______ index can be used to measure risk-adjusted performance of a stock while controlling forthe stock’s volatility.A) SharpeB) TreynorC) arbitrageD) marginANSWER: A16. The _______ index can be used to measure risk-adjusted performance of a stock while controlling for the stock’s beta.A) SharpeB) TreynorC) arbitrageD) marginANSWER: B4 Stock Valuation and Risk17. Stock price volatility increased during the credit crisis.A) TrueB) FalseANSWER: A18. The Sharpe Index measures theA) average return on a stock.B) variability of stock returns per unit of returnC) stock’s beta adjusted for risk.D) excess return above the risk-free rate per unit of risk.ANSWER: D19. A stock’s average return is 11 percent. The average risk-free rate is 9 percent. The stock’s beta is 1and its standard deviation of returns is 10 percent. What is the Sharpe Index?A) .05B) .5C) .1D) .02E) .2ANSWER: E20. A stock’s average return is 10 percent. The average risk-free rate is 7 percent. The standarddeviation of the stock’s return is 4 percent, and the stock’s beta is 1.5. What is the Treynor Index for the stock?A) .03B) .75C) 1.33D) .02E) 50ANSWER: D21. If security prices fully reflect all market-related information (such as historical price patterns) but do not fully reflect all other public information, security markets areA) weak-form efficient.B) semi-strong form efficient.C) strong form efficient.D) B and CE) none of the aboveANSWER: A22. If security markets are semi-strong form efficient, investors cannot solely use ______ to earn excess returns.A) previous price movementsB) insider informationStock Valuation and Risk 5C) publicly available informationD) A and CANSWER: D23. The ______ is commonly used to determine what a stock’s price should have been.A) Capital Asset Pricing ModelB) Treynor IndexC) Sharpe IndexD) B and CANSWER: A24. A stock’s beta is estimated to be 1.3. The risk-free rate is 5 percent, and the market return is expected to be 9 percent. What is the expected return on the stock based on the CAPM?A) 5.2 percentB) 11.7 percentC) 16.7 percentD) 4 percentE) 10.2 percentANSWER: E25. According to the text, other things being equal, stock prices of U.S. firms primarily involved inexporting could be ______ affected by a weak dollar. Stock prices of U.S. importing firms could be ______ affected by a weak dollar.A) adversely; favorablyB) favorably; adverselyC) favorably; favorablyD) adversely; adverselyANSWER: B26. The demand by foreign investors for the stock of a U.S. firm sold on a U.S. exchange may be higherwhen the dollar is expected to ______, other things being equal. (Assume the firm’s operations are unaffected by the value of the dollar.)A) strengthenB) weakenC) stabilizeD) B and CANSWER: A27. A higher beta of an asset reflectsA) lower risk.B) lower covariance between the asset’s returns and market returns.C) higher covariance between the asset’s returns and the market returns.D) none of the above6 Stock Valuation and RiskANSWER: C28. The “January effect” refers to a largeA) rise in the price of small stocks in January.B) decline in the price of small stocks in January.C) decline in the price of large stocks in January.D) rise in the price of large stocks in January.ANSWER: A29. Technical analysis relies on the use of ______ to make investment decisions.A) interest ratesB) inflationary expectationsC) industry conditionsD) recent stock price trendsANSWER: D30. The arbitrage pricing theory (APT) differs from the capital asset pricing model (CAPM) in that it suggests that stock pricesA) are influenced only by the market itself.B) can be influenced by a set of factors in addition to the market.C) are not influenced at all by the market.D) cannot be influenced at all by the industry factors.ANSWER: B31. According to the capital asset pricing model, the required return by investors on a security isA) inversely related with the risk-free rate.B) inversely related with the firm’s beta.C) inversely related with the market return.D) none of the aboveANSWER: D32. Boris stock has an average return of 15 percent. Its beta is 1.5. Its standard deviation of returns is 25 percent. The average risk-free rate is 6 percent. The Sharpe index for Boris stock isA)0.35.B)0.36.C)0.45.D)0.28.E)none of the aboveANSWER: B33. Morgan stock has an average return of 15 percent, a beta of 2.5, and a standard deviation of returns of20 percent. The Treynor index of Morgan stock isA)0.04.B)0.05.Stock Valuation and Risk 7C)0.35.D)0.03.E)none of the above34. Zilo stock has an average return of 15 percent, a beta of 2.5, and a standard deviation of returns of 20percent. The Sharpe index of Zilo stock isA)0.36.B)0.35.C)0.28.D)0.45.E)none of the aboveANSWER: B35. Sorvino Co. is expected to offer a dividend of $3.2 per share per year forever. The required rate ofreturn on Sorvino stock is 13 percent. Thus, the price of a share of Sorvino stock, according to the dividend discount model, is $_________.A) 4.06B) 4.16C)40.63D)24.62E)none of the aboveANSWER: D36. Kudrow stock just paid a dividend of $4.76 per share and plans to pay a dividend of $5 per share nextyear, which is expected to increase by 3 percent per year subsequently. The required rate of return is15 percent. The value of Kudrow stock, according to the dividend discount model, is $__________.A)39.67B)41.67C)33.33D)31.73E)none of the aboveANSWER: B37. LeBlanc Inc. currently has earnings of $10 per share, and investors expect that the earnings per sharewill grow by 3 percent per year. Furthermore, the mean PE ratio of all other firms in the sameindustry as LeBlanc Inc. is 15. LeBlanc is expected to pay a dividend of $3 per share over the next four years, and an investor in LeBlanc requires a return of 12 percent. What is the forecasted stock price of LeBlanc in four years, using the adjusted dividend discount model?A)$150.00B)$163.91C)$45.00D)$168.83E)none of the above8 Stock Valuation and Risk38. Tarzak Inc. has earnings of $10 per share, and investors expect that the earnings per share will growby 3 percent per year. Furthermore, the mean PE ratio of all other firms in the same industry asTarzac is 15. Tarzac is expected to pay a dividend of $3 per share over the next four years, and an investor in Tarzac requires a return of 12 percent. The estimated stock price of Tarzak today should be __________ using the adjusted dividend discount model.A)$116.41B)$104.91C)$161.15D)none of the aboveANSWER: A39. The standard deviation of a stock’s returns is used to measure a stock’sA)volatility.B)beta.C)Treynor Index.D)risk-free rate.ANSWER: A40. The formula for a stock portfolio’s volatility does not contain theA)weight (proportional investment) assigned to each stock.B)variance (standard deviation squared) of returns of each stock.C) correlation coefficients between returns of each stock.D) risk-free rate.ANSWER: D41. If the returns of two stocks are perfectly correlated, thenA) their betas should each equal 1.0.B) the sum of their betas should equal 1.0.C) their correlation coefficient should equal 1.0.D) their portfolio standard deviation should equal 1.0.ANSWER: C42. A stock’s beta can be measured from the estimate of the using regression analysis.A) interceptB) market returnC) risk-free rateD) slope coefficientANSWER: D43. A beta of 1.1 means that for a given 1 percent change in the value of the market, theis expected to change by 1.1 percent in the same direction.A)risk-free rateB)stock’s valueStock Valuation and Risk 9C)s tock’s standard deviationD)correlation coefficientANSWER: B44. Stock X has a lower beta than Stock Y. The market return for next month is expected to be either–1 percent, +1 percent, or +2 percent with an equal probability of each scenario. The probability distribution of Stock X returns for next month isA)the same as that of Stock Y.B)more dispersed than that of Stock Y.C)less dispersed than that of Stock Y.D)zero.ANSWER: C45. The beta of a stock portfolio is equal to a weighted average of theA)betas of stocks in the portfolio.B)betas of stocks in the portfolio, plus their correlation coefficients.C)standard deviations of stocks in the portfolio.D)correlation coefficients between stocks in the portfolio.ANSWER: A46. Value at risk estimates the a particular investment for a specified confidence level.A)beta ofB)risk-free rate ofC)largest expected loss toD)standard deviation ofANSWER: C47. A stock has a standard deviation of daily returns of 1 percent. It wants to determine the lowerboundary of its probability distribution of returns, based on 1.65 standard deviations from theexpected outcome. The stock’s expected daily return is .2 percent. The lower boundary isA)–1.45 percent.B)–1.85 percent.C)0 percent.D)–1.65 percent.ANSWER: A48. A stock has a standard deviation of daily returns of 3 percent. It wants to determine the lower boundary of its probability distribution of returns, based on 1.65 standard deviations from the expected outcome. The stock’s expected daily return is .1 percent. The lower boundary isA)–1.65 percent.B)–3.00 percent.C)–4.85 percent.D)–5.05 percent.10 Stock Valuation and RiskANSWER: C49. Which of the following is not commonly used as the estimate of a stock’s volatility?A)the estimate of its standard deviation of returns over a recent periodB)the trend of historical standard deviations of returns over recent periodsC)the implied volatility derived from an option pricing modelD)the estimate of its option premium derived from an option pricing modelANSWER: D50. The credit crisis only affected the stock performance of stocks in the U.S.A) TrueB) FalseANSWER: B51. When new information suggests that a firm will experience lower cash flows than previously anticipated or lower risk, investors will revalue the corresponding stock downward.A) TrueB) FalseANSWER: B52. A relatively simple method of valuing a stock is to apply the mean price-earnings (PE) ratio of all publicly traded competitors in the respective industry to the firm’s expected earnings for the year.ANSWER: A53. While the previous year’s earnings are often used as a base for forecast ing future earnings, the recent year’s earnings do not always provide an accurate forecast of the future.A) TrueB) FalseANSWER: A54. If investo rs agree on a firm’s forecasted earnings, they will derive the same value for that firm using the PE method to value the firm’s stock.A) TrueB) FalseANSWER: B55. The dividend discount model states that the price of a stock should reflect the present value of the stock’s future dividends.A) TrueB) FalseStock Valuation and Risk 11 ANSWER: A56. The dividend discount model can be adapted to assess the value of any firm, even those that retain most or all of their earnings.A) TrueB) FalseANSWER: A57. For firms that do not pay dividends, a more suitable valuation may be the free cash flow model.A) TrueB) FalseANSWER: A58. The capital asset pricing model (CAPM) is based on the premise that the only important risk of a firm is unsystematic risk.A) TrueB) FalseANSWER: B59. The prime rate is commonly used as a proxy for the risk-free rate in the capital asset pricing model60. A stock with a beta of 2.3 means that for every 1 percent change in the market overall, the stock tends to change by 2.3 percent in the same direction.A) TrueB) FalseANSWER: A61. Stocks that have relatively little trading are normally subject to less price volatility.A) TrueB) FalseANSWER: B62. A firm’s stock price is affected not only by macroeconomic and market conditions but also by firm specific conditions.A) TrueB) FalseANSWER: A12 Stock Valuation and Risk63. Stock repurchases are commonly viewed as an unfavorable signal about the firm.A) TrueB) FalseANSWER: B64. The main source of uncertainty in computing the return of a stock is the dividend to be received next year.A) TrueB) FalseANSWER: B65. A stock portfolio has more volatility when its individual stock returns are uncorrelated.A) TrueB) FalseANSWER: B66. Beta serves as a measure of risk because it can be used to derive a probability distribution of return67. The value-at-risk method is intended to warn investors about the potential maximum loss that couldoccur.A) TrueB) FalseANSWER: A68. Regarding the value-at-risk method, the same methods used to derive the maximum expected loss ofone stock can be applied to derive the maximum expected loss of a stock portfolio for a givenconfidence level.A) TrueB) FalseANSWER: A69. Portfolio managers who monitor systematic risk rather than total risk are more concerned about stockvolatility than about beta.A) TrueB) FalseANSWER: BStock Valuation and Risk 13 70. Regarding the implied standard deviation, by plugging in the actual option premium paid by investorsfor a specific stock in the option-pricing model, it is possible to derive the anticipated volatility level.A) TrueB) FalseANSWER: A71. One way to forecast a portfolio’s beta is to first forecast the betas of the individual stocks in theportfolio and then sum the individual forecasted betas, weighted by the market value of each stock.A) TrueB) FalseANSWER: B72. If beta is thought to be the appropriate measure of risk, a stock’s risk-adjusted returns should bedetermined by the Sharpe index.ANSWER: B73. The Treynor index is similar to the Sharpe index, except that is uses beta rather than standarddeviation to measure the stock’s risk.A) TrueB) FalseANSWER: A74. Fabrizio, Inc. is expected to generate earnings of $1.50 per share this year. If the mean ratio of shareprice to expected earnings of competitors in the same industry is 20, then the stock price per share is $_________.A)13.33B) 3.00C)20.00D)30.00E)none of the aboveANSWER: D75. Which of the following is not a reason the PE ratio method may result in an inaccurate valuation for afirm?A)potential errors in the forecast of the firm’s betaB)potential errors in the forecast of the firm’s future earningsC)potential errors in the choice of the industry composite used to derive the PE ratioD)All of the above are reasons the PE ratio method may result in an inaccurate valuation for a firm.ANSWER: A14 Stock Valuation and Risk76. Sorvino Co. is expected to offer a dividend of $3.2 per share per year forever. The required rate ofreturn on Sorvino stock is 13 percent. Thus, the price of a share of Sorvino stock, according to the dividend discount model, is $_________.A) 4.06B) 4.16C)24.62D)40.63E)none of the aboveANSWER: Csubsequently. The required rate of return is 15 percent. The value of Kudrow stock, according to the dividend discount model, is $__________.A)39.67B)33.33C)31.73D)41.67E)none of the aboveANSWER: D78. The limitations of the dividend discount model are most pronounced for a firm thatA)has a high beta.B)has high expected future earnings.C)distributes most of its earnings as dividends.D)retains all of its earnings.E)none of the aboveANSWER: D79. Which of the following is incorrect regarding the capital asset pricing model (CAPM)?A)It is sometimes used to estimate the required rate of return for any firm with publicly traded stock.B)It is based on the premise that the only important risk of a firm is systematic risk.C)It is concerned with unsystematic risk.D)All of the above are true.ANSWER: C80. The _______________ is not a factor used in the capital asset pricing model (CAPM) to derive thereturn of an asset.A)prevailing risk-free rateB)dividend growth rateC)market returnD)covariance between the asset’s returns and market returnsE)All of the above are factors used in the CAPM.NSWER: BStock Valuation and Risk 15 81. Schwimmer Corp. has a beta of 1.5. The prevailing risk-free rate is 5 percent and the annual marketreturn in recent years has been 11 percent. Based on this information, the required rate of return on Schwimmer Corp. stockB) 6.5C)16.5D)14.0E)none of the aboveANSWER: D82. Which of the following is not a type of factor that drives stock prices, according to your text?A)economic factorsB)market-related factorsC)firm-specific factorsD)All of the above are factors that affect stock prices.ANSWER: D83. ______________ is (are) not a market-related factor(s) that affect(s) stock prices.A)Interest ratesB)Noise tradingC)TrendsD)January effectE)All of the above are market-related factors that affect stock prices.ANSWER: A84. _____________ is (are) not a firm-specific factor(s) that affect(s) stock prices.A)Exchange ratesB)Dividend policy changesC)Stock offerings and repurchasesD)Earnings surprisesE)All of the above are firm-specific factors that affect stock prices.ANSWER: A85. The ____________ is not a measure of a st ock’s risk.A)stock’s price volatilityB)stock’s returnC)stock’s betaD)value-at-risk methodE)All of the above are measures of a stock’s risk.ANSWER: B86. If the standard deviation of a stock’s returns over the last 12 quarters i s 4 percent, and if there is no16 Stock Valuation and RiskB)68; 8C)95; 8D)95; 6E)none of the above ANSWER: A。

CEO Chief Excutive Officer 执行总裁缩写英文对照中文术语 CQC Companywide Quality Control 全公司范围的品质治理 8D 8 Disciplines Of Solving Problem 解决问题8步法CPM Complaint Per Illion 每百万埋怨次 AC./RE. Acceptable / Rejective 允收/拒收CAD Computer Aided Design运算机辅助设计 AQL Acceptable Quallity Level 允收水准CTO Configuration To Order 客制化生产 ABB Activity-Based Budgeting 实施作业制预算制度CRC Contract Review Committee 合同评审委员会ABC Activity-Based Costing 作业制本钱制度CIF Cost Inusance And Freight 到岸价钱 ABM Activity-Based Mangement 作业制本钱治理COQ Cost Of Quality 品质本钱 APS Advanced Planning And Scheduling 应用程式效劳供给商CPM Critical Path Method 要径法APQP Advanced Product Quality Planning 先期产品品质计划CTQ Critical Quality 关键质量 ANOVA Analysis Of Variance 方差分析CAR Crrective Action Report纠正方法报告AAR Appearance Approval Report 外观承认报告CRM Customer Relationship Management 客户关系治理 AC Appraisal Cost 鉴定本钱CR Customer's Risk 消费者冒险率 ASL Approved Suplier List 合格供给商清单DSS Decision Support System 决策资源系统 AVL Approved Vendor List 认可的供给商清单DS/SS ATP Available To Promise 可许诺量DPU Defect Per Unit 单位缺点数BSC Balanced Score Card 平稳记分卡DPMO Defects Per Million Opportunity百万个机遇中的缺点数BOM Bill Of Material 材料明细DMADVDefine\Measurement\Analysis\Design\Verify 确信、测量、分析、设计、验证BTF Build To Forecarst 打算生产DMAICDefine\Measurement\Analysis\Improvement\Control 确信、测量、分析、改善、操纵 BTO Build To Order 定单生产DEPT. Department 部门BPR Business Process Reengineering 企业流程再造DMT Design Matuing Testing 成熟度验证CPK Capability Of Process 修正进程能力指数DOE Design Of Experiment 实验设计Ca. Capability Of Accuraty 精准度指数DVT Design Verification Testing 设计验证 Cp. Capability Of Precesion 周密度指数DRP Distribution Resource Planning 运销资源打算 CRP Capacity Requirement Planning 产能需求计划DTS Dock To Stock 免验 C. OF C. Certificate Of Compliance （质量）许诺证明书DCC Document Control Centre 文管中心DBE Drum-Buffer-Rope 限制驱导式排程法 KCP Key Control Point 关键操纵点EOQ Economic Order Quantity 大体经济订购量 KM Knowledge Management 知识治理 EMC Electric Magnetic Capability 电磁相容 LDPU Latent DeFect Per Unit单位产品潜在缺点 EC Electronic Commerce 电子商务 LTC Least Total Cost 最小总本钱法 EDI Electronic Data Imterchange 电子资料互换 LUC Least Unit Cost 最小单位本法 EC Engenering Change 工程变更 LS Lobour Scrap 工时损失 ECN Engenering Change Notice 工程变更通知 LRR lot Rejective Rate 批退率 ECRN Engineer Change Request Notice 原件规格更改通知 LTPD Lot Tolerance Percent Defective 拒收水准 ERP Enterprise Resource Planning 物料需求打算 L4L Lot-For-Lot 逐批订购法 EI&PM Employee Involvement & participative Management全员参与法 LCL Lower Control Limit 下操纵界限 EIS Executive Information System 主管决策系统 LSL Lower Specification Limit 下规格界限 FAE Field Application Engineer 应用工程师 MRO Maintenance Repair Operation 请修（购）单 FQC Finish Or Final Quality Control 成品品质管制 MIS Management Information System 资讯系统 FAI First Article Inspection 首件查验 MO Management Order 制令 FMEA Failure Mode And Efects Analysis 失效模式及效应分析 MES Manufacturing Execution System 制造执行系统 Yft First Time Yield第一次通过率 MRP-II Manufacturing Resourece Planning 制造资源计划 FMS Flexible Manufacture System 弹性制造系统 MPS Master Production Scheduling主生产排程 FCST Forecast 预估 MRP Material Requirement Plan 物料需求计划FOB Free Of Board 离岸价 MRB Material Review Board 物料鉴审委员会 G R&R Gauge Reproducility & Repeatability 量具再现性与再生性 MSDS Material Safety Data Sheet 物质平安资料表 GWQC Groupwide Quality Control 全集团范围的品质治理 MS Material Scrap 材料报废 IQC Incoming Quality Control 进料品质管制 MTBF Mean Time Between Failure 平均故障距离时刻 ISAR Initial Sample Approval Request 首批样品认可 MSA Measurement System Analysis 测量系统分析 IPQC In-Process Quality Control 进程品质管制 NG Not Good 不良 ISO International Standardization Orgnization 国际标准化组织 OLAP On-Line Analytical Processing 线上分析处置 JIT Just In Time 即时治理 OLTP On-Line Transaction Processing 线上交易处置OPT Optimized Production Technology 最正确生产技术 QSA Quality System Assessment 品质系统评鉴 ODM Original Design & Manufacture 委托设计与制造 ROP Re-Order Point 再订购点 OEM Original Equeitpment Manufacture 原始设备制造商/委托代工 R&D Reserrch And Development 研究开发 OQC Out-Going Quality Control 出货物质管制 RMA Returned Material Approval 进货验收 PPM Part Per Million 百万分之…… RC Rework Cost 返工费用 PDCA Plan Do Check Action PDCA治理循环 RPN Risk Priority Number 风险领先指数 PSO President Staff Office 总领导办公室 Yrt Rolled Thoughtput Yield 全进程通过率PM Prevention Mmaintenance 预防保护 RCCP Rough Cut Capacity Planning 粗略产能计划 PC Preventive Cost 预防本钱 S S 样本误差 PR Producer's Risk 生产者冒险率 SO Sales Order 定单 PDM Product Data Management 生产资料治理系统SFC Shop Floor Comtrol 现场操纵 POH Product On Hand 预估在手量σ Sigma 标准差 PPAP Production Part Approval Process 生产品核工业准程序 SOR Special Order Request 特殊定单需求 PERT Program Evaluation And Review Technique 打算评核术 SPEC. Specification 标准/规格 P/O Purchase Order 定单 SDCA Standardzation Do Check Action SDCA治理循环 QA Quality Assurance 质量保证SPC Statistical Process Control 进程统计操纵 QC Quality Control 质量管制 SIS Strategic Information System 策略资讯系统 QCC Quality Control Circle 品管圈SWOT Strength\ Weakness \Oportunity\ Treats 企业SWOT分析资料 QCFS Quality Control Flow Sheet 品质操纵流程图 SQD Supplier Quality Develepment 供给商品质开发 QDN Quality Deviation Notice 品质异样通知 SCM Supply Chain Management 供给链治理 QDR Quality Deviation Request 品质异样答复TOC Theory Of Constraints 限制理论 QE Quality Engineering 品质工程 Ytp Thoughtout Yield 进程通过率 QFD Quality Function Depioyment 品质功能展开TMC Total Manufacture Cost 总制造本钱 QIT Quality Improvement Team 品质改善团队 TPM Total Production Management 全面生产治理 QIS Quality Information System 品质信息系统 TQM Total Quality Management 全面品质治理 QS9000 Quality System 9000 品质系统9000 UCL Upper Control Limit 上操纵界限USL Upper Specification Limit 上规格界限 FQA: Final Quality Assurance 最终品质保证 WIP Work In Process 在制品 FQC: Final Quality control 最终品质操纵Xbar X bar X平均值 Gauge system 量测系统 Grade 品级 Inductance 电感Improvement 改善品质治理名词（中英文对照） Inspection 查验 IPQC: In Process Quality Control 制程品质操纵 QE=品质工程师（Quality Engineer）IQC: Incoming Quality Control 来料品质操纵 MSA: Measurement System Analysis 量测系统分析 ISO: International Organization for Standardization 国际标准组织 LCL: Lower Control limit 管制下限 LQC: Line Quality Control 生产线品质操纵 Control plan 管制打算 LSL: Lower Size Limit 规格下限 Correction 纠正 Materials 物料 Cost down 降低本钱 Measurement 量测 CS: customer Sevice 客户中心 Occurrence 发生率 Data 数据 Operation Instruction 作业指导书 Data Collection 数据搜集 Organization 组织 Description 描述Parameter 参数 Device 装置 Parts 零件 Digital 数字 Pulse 脉冲 Do 执行Policy 方针 DOE: Design of Experiments 实验设计 Procedure 流程Environmental 环境 Process 进程 Equipment 设备 Product 产品 FMEA: Failure Mode and Effect analysis 失效模式与成效分析Production 生产 FA: Failure Analysis 坏品分析 Program 方案Projects 项目 Specification 规格 QA: Quality Assurance 品质保证 SQA: Source(Supplier) Quality Assurance 供给商品质保证 QC: Quality Control 品质操纵 Taguchi-method 田口方式 QE: Quality Engineering 品质工程 TQC: Total Quality Control 全面品质操纵 QFD: Quality Function Design 品质性能展开TQM: Total Quality Management 全面品质治理 Quality 质量 Traceability 追溯Quality manual 品质手册 UCL: Upper Control Limit 管制上限 Quality policy 品质政策 USL: Upper Size Limit 规格上限 Range 全距 Validation 确认 Record 记录 Variable 计量值 Reflow 回流 Verification 验证 Reject 拒收 Version 版本 Repair 返修 QCC Quality Control Circle 品质圈/QC小组 Repeatability 再现性 PDCA Plan Do Check Action 打算执行检查总结 Reproducibility 再生性Consumer electronics 消费性电子产品 Requirement 要求 Communication 通信类产品 Residual 误差 Core value （核心价值） Response 响应 Love 爱心Responsibilities 职责 Confidence 信心 Review 评审 Decision 决心 Rework 返工 Corporate culture (公司文化) Rolled yield 直通率 Integration 融合 sample 抽样,样本 Responsibility 责任 Scrap 报废 Progress 进步 SOP: Standard Operation Procedure 标准作业书 QC quality control 品质治理人员 SPC:Statistical Process Control 统计制程管制FQC final quality control 终点品质管制人员IPQC in process quality control 制程中的品质管制人员 PPM Percent Per Million 百万分之一 OQC output quality control 最终出货物质管制人员 SPC Statistical Process Control 统计制程管制 IQC incoming quality control 进料品质管制人员 SQC Statistical Quality Control 统计品质管制 TQC total quality control 全面质量治理 GRR Gauge Reproducibility & Repeatability 量具之再制性及重测性判定量靠得住与否 POC passage quality control 段检人员 DIM Dimension 尺寸 QA quality assurance 质量保证人员 DIA Diameter 直径 OQA output quality assurance 出货质量保证人员 QIT Quality Improvement Team 品质改善小组 QE quality engineering 品质工程人员 ZD Zero Defect 零缺点 FAI first article inspection 新品首件检查 QI Quality Improvement 品质改善 FAA first article assurance 首件确认 QP Quality Policy 目标方针 CP capability index 能力指数 TQM Total Quality Management 全面品质治理 SSQA standardized supplier quality audit 合格供给商品质评估 RMA Return Material Audit 退料认可 FMEA failure model effectiveness analysis 失效模式分析 7QCTools 7 Quality Control Tools 品管七大手法 AQL Acceptable Quality Level 运作类允收品质水准通用之件类 S/S Sample size 抽样查验样本大小 ECN Engineering Change Notice 工程变更通知(供给商) ACC Accept 允收 ECO Engineering Change Order 工程改动要求(客户) REE Reject 拒收 PCN Process Change Notice 工序改动通知 CR Critical 极严峻的 PMP Product Management Plan 生产管制打算 MAJ Major 要紧的 SIP Standard Inspection Procedure 制程查验标准程序 MIN Minor 轻微的 SOP Standard Operation Procedure 制造作业标准 Q/R/S Quality/Reliability/Service 品质/靠得住度/效劳 IS Inspection Specification 成品查验标准 P/N Part Number 料号 BOM Bill Of Material 物料清单 L/N Lot Number 批号 PS Package Specification 包装标准 AOD Accept On Deviation 特采 SPEC Specification 规格 UAI Use As It 特采 DWG Drawing 图面 FPIR First Piece Inspection Report 首件检查报告系统文件类ES Engineering Standard 工程标准OQC：Outgoing Quality Control 出货物质操纵 IWS International Workman Standard 工艺标准SQA：Source (Supplier) Quality Assurance 供给商品质保证 ISO International StandardizationOrganization 国际标准化组织DCC：Document Control Center 文控中心 GS General Specification 一样规格PQA：Process Quality Assurance 制程品质保证部类DAS：Defects Analysis System 缺点分析系统 PMC Production & Material Control 生产和物料操纵 PCC Product control center 生产管制中心FA：Failure Analysis 坏品分析 PPC Production Plan Control 生产打算操纵CPI：Continuous Process Improvement 持续工序改善 MC Material Control 物料操纵CS：Customer Service 客户效劳 DCC Document Control Center 资料操纵中心 QE Quality Engineering 品质工程(部) QA Quality Assurance 品质保证处QC Quality Control 品质管制(课) PD Product Department 生产部 LAB Laboratory 实验室 IE Industrial Engineering 工业工程 R&D Research & Design设计开发部 QC：Quality Control 品质操纵 QA：Quality Assurance 品质保证 QE：Quality Engineering 品质工程 IQC：Incoming Quality Control 来料品质操纵 LQC：Line Quality Control 生产线品质操纵 IPQC：In Process Quality Control 制程品质操纵 FQC：Final Quality Control 最终品质操纵。

投资学课后答案APTChapter 10 Arbitrage Pricing Theory and Multifactor Models of Risk and Return Multiple Choice Questions1. ___________ a relationship between expected return and risk.A. APT stipulatesB. CAPM stipulatesC. Both CAPM and APT stipulateD. Neither CAPM nor APT stipulateE. No pricing model has found2. Consider the multifactor APT with two factors. Stock A has an expected return of 17.6%, a beta of 1.45 on factor 1 and a beta of .86 on factor 2. The risk premium on the factor 1 portfolio is3.2%. The risk-free rate of return is 5%. What is the risk-premium on factor 2 if no arbitrage opportunities exit?A. 9.26%B. 3%C. 4%D. 7.75%E. 9.75%3. In a multi-factor APT model, the coefficients on the macro factors are often called ______.A. systemic riskB. factor sensitivitiesC. idiosyncratic riskD. factor betasE. both factor sensitivities and factor betas4. In a multi-factor APT model, the coefficients on the macro factors are often called ______.A. systemic riskB. firm-specific riskC. idiosyncratic riskD. factor betasE. unique risk5. In a multi-factor APT model, the coefficients on the macro factors are often called ______.A. systemic riskB. firm-specific riskC. idiosyncratic riskD. factor loadingsE. unique risk6. Which pricing model provides no guidance concerning the determination of the risk premium on factor portfolios?A. The CAPMB. The multifactor APTC. Both the CAPM and the multifactor APTD. Neither the CAPM nor the multifactor APTE. No pricing model currently exists that provides guidance concerning the determination of the risk premium on any portfolio7. An arbitrage opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit.A. small positiveB. small negativeC. zeroD. large positiveE. large negative8. The APT was developed in 1976 by ____________.A. LintnerB. Modigliani and MillerC. RossD. SharpeE. Fama9. A _________ portfolio is a well-diversified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor.A. factorB. marketC. indexD. factor and marketE. factor, market, and index10. The exploitation of security mispricing in such a way that risk-free economic profits may be earned is called___________.A. arbitrageB. capital asset pricingC. factoringD. fundamental analysisE. technical analysis11. In developing the APT, Ross assumed that uncertainty in asset returns was a result ofA. a common macroeconomic factor.B. firm-specific factors.C. pricing error.D. neither common macroeconomic factors nor firm-specific factors.E. both common macroeconomic factors and firm-specific factors.12. The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.A. APT; CAPMB. APT; OPMC. CAPM; APTD. CAPM; OPME. APT and OPM; CAPM13. Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of 16%. Portfolio B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _______.A. A; AB. A; BC. B; AD. B; BE. A; the riskless asset14. Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of 13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio _________ and a long position in portfolio _________.A. A; AB. A; BC. B; AD. B; BE. No arbitrage opportunity exists.15. Consider the one-factor APT. The variance of returns on the factor portfolio is 6%. The beta of a well-diversified portfolio on the factor is 1.1. The variance of returns on thewell-diversified portfolio is approximately __________.A. 3.6%B. 6.0%C. 7.3%D. 10.1%E. 8.6%16. Consider the one-factor APT. The standard deviation of returns on a well-diversified portfolio is 18%. The standard deviation on the factor portfolio is 16%. The beta of thewell-diversified portfolio is approximately __________.A. 0.80B. 1.13C. 1.2517. Consider the single-factor APT. Stocks A and B have expected returns of 15% and 18%, respectively. The risk-free rate of return is 6%. Stock B has a beta of 1.0. If arbitrage opportunities are ruled out, stock A has a beta of __________.A. 0.67B. 1.00C. 1.30D. 1.69E. 0.7518. Consider the multifactor APT with two factors. Stock A has an expected return of 16.4%, a beta of 1.4 on factor 1 and a beta of .8 on factor 2. The risk premium on the factor 1 portfolio is 3%. The risk-free rate of return is 6%. What is the risk-premium on factor 2 if no arbitrage opportunities exit?A. 2%B. 3%C. 4%D. 7.75%E. 6.89%19. Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and factor 2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.A. 13.5%B. 15.0%C. 16.5%D. 23.0%E. 18.7%20. Consider the multifactor APT with two factors. The risk premiums on the factor 1 and factor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1, and a beta of 0.7 on factor 2. The expected return on stock A is 17%. If no arbitrage opportunities exist, the risk-free rate of return is ___________.A. 6.0%B. 6.5%C. 6.8%D. 7.4%E. 7.7%21. Consider a one-factor economy. Portfolio A has a beta of 1.0 on the factor and portfolio B has a beta of 2.0 on the factor. The expected returns on portfolios A and B are 11% and 17%, respectively. Assume that the risk-free rate is 6% and that arbitrage opportunities exist. Suppose you invested $100,000 in the risk-free asset, $100,000 in portfolio B, and sold short $200,000 of portfolio A. Your expected profit from this strategy would be ______________.A. ?$1,000B. $0C. $1,00022. Consider the one-factor APT. Assume that two portfolios, A and B, are well diversified. The betas of portfolios A and B are 1.0 and 1.5, respectively. The expected returns on portfolios A and B are 19% and 24%, respectively. Assuming no arbitrage opportunities exist, therisk-free rate of return must be ____________.A. 4.0%B. 9.0%C. 14.0%D. 16.5%E. 8.2%23. Consider the multifactor APT. The risk premiums on the factor 1 and factor 2 portfolios are 5% and 3%, respectively. The risk-free rate of return is 10%. Stock A has an expected return of 19% and a beta on factor 1 of 0.8. Stock A has a beta on factor 2 of ________.A. 1.33B. 1.50C. 1.67D. 2.00E. 1.7324. Consider the single factor APT. Portfolios A and B have expected returns of 14% and 18%, respectively. The risk-free rate of return is 7%. Portfolio A has a beta of 0.7. If arbitrage opportunities are ruled out, portfolio B must have a beta of__________.A. 0.45B. 1.00C. 1.10D. 1.22E. 1.33There are three stocks, A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upcoming year; economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below:25. If you invested in an equally weighted portfolio of stocks A and B, your portfolio return would be ___________ if economic growth were moderate.A. 3.0%D. 16.0%E. 17.0%26. If you invested in an equally weighted portfolio of stocks A and C, your portfolio return would be ____________ if economic growth was strong.A. 17.0%B. 22.5%C. 30.0%D. 30.5%E. 25.6%27. If you invested in an equally weighted portfolio of stocks B and C, your portfolio return would be _____________ if economic growth was weak.A. ?2.5%B. 0.5%C. 3.0%D. 11.0%E. 9.0%28. If you wanted to take advantage of a risk-free arbitrage opportunity, you should take a short position in _________ and a long position in an equally weighted portfolio of _______.A. A; B and CB. B; A and CC. C; A and BD. A and B; CE. No arbitrage opportunity exists.Consider the multifactor APT. There are two independent economic factors, F1and F2. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios:29. Assuming no arbitrage opportunities exist, the risk premium on the factor F1portfolio should be __________.A. 3%B. 4%C. 5%D. 6%E. 2%30. Assuming no arbitrage opportunities exist, the risk premium on the factor F2 portfolio should be ___________.A. 3%B. 4%C. 5%D. 6%E. 2%31. A zero-investment portfolio with a positive expected return arises when _________.A. an investor has downside risk onlyB. the law of prices is not violatedC. the opportunity set is not tangent to the capital allocation lineD. a risk-free arbitrage opportunity existsE. a risk-free arbitrage opportunity does not exist32. An investor will take as large a position as possible when an equilibrium price relationship is violated. This is an example of _________.A. a dominance argumentB. the mean-variance efficiency frontierC. a risk-free arbitrageD. the capital asset pricing modelE. the SML33. The APT differs from the CAPM because the APT _________.A. places more emphasis on market riskB. minimizes the importance of diversificationC. recognizes multiple unsystematic risk factorsD. recognizes multiple systematic risk factorsE. places more emphasis on systematic risk34. The feature of the APT that offers the greatest potential advantage over the CAPM is the ______________.A. use of several factors instead of a single market index to explain the risk-return relationshipB. identification of anticipated changes in production, inflation, and term structure as key factors in explaining the risk-return relationshipC. superior measurement of the risk-free rate of return over historical time periodsD. variability of coefficients of sensitivity to the APT factors for a given asset over timeE. superior measurement of the risk-free rate of return over historical time periods and variability of coefficients of sensitivity to the APT factors for a given asset over time35. In terms of the risk/return relationship in the APTA. only factor risk commands a risk premium in market equilibrium.B. only systematic risk is related to expected returns.C. only nonsystematic risk is related to expected returns.D. only factor risk commands a risk premium in market equilibrium and only systematic risk is related to expected returns.E. only factor risk commands a risk premium in market equilibrium and only nonsystematic risk is related to expected returns.36. The following factors might affect stock returns:A. the business cycle.B. interest rate fluctuations.C. inflation rates.D. the business cycle, interest rate fluctuations, and inflation rates.E. the relationship between past FRED spreads.37. Advantage(s) of the APT is(are)A. that the model provides specific guidance concerning the determination of the risk premiums on the factor portfolios.B. that the model does not require a specific benchmark market portfolio.C. that risk need not be considered.D. that the model provides specific guidance concerning the determination of the risk premiums on the factor portfolios and that the model does not require a specific benchmark market portfolio.E. that the model does not require a specific benchmark market portfolio and that risk need not be considered.38. Portfolio A has expected return of 10% and standard deviation of 19%. Portfolio B has expected return of 12% and standard deviation of 17%. Rational investors willA. borrow at the risk free rate and buy A.B. sell A short and buy B.C. sell B short and buy A.D. borrow at the risk free rate and buy B.E. lend at the risk free rate and buy B.39. An important difference between CAPM and APT isA. CAPM depends on risk-return dominance; APT depends on a no arbitrage condition.B. CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.C. implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.D. CAPM depends on risk-return dominance; APT depends on a no arbitrage condition, CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium, implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.E. CAPM depends on risk-return dominance; APT depends on a no arbitrage condition and assumes many small changes are required to bring the market back to equilibrium.40. A professional who searches for mispriced securities in specific areas such as merger-target stocks, rather than one who seeks strict (risk-free) arbitrage opportunities is engaged inA. pure arbitrage.B. risk arbitrage.C. option arbitrage.D. equilibrium arbitrage.E. covered interest arbitrage.41. In the context of the Arbitrage Pricing Theory, as a well-diversified portfolio becomes larger its nonsystematic risk approachesA. one.B. infinity.C. zero.D. negative one.E. None of these is correct.42. A well-diversified portfolio is defined asA. one that is diversified over a large enough number of securities that the nonsystematic variance is essentially zero.B. one that contains securities from at least three different industry sectors.C. a portfolio whose factor beta equals 1.0.D. a portfolio that is equally weighted.E. a portfolio that is equally weighted and contains securities from at least three different industry sectors.43. The APT requires a benchmark portfolioA. that is equal to the true market portfolio.B. that contains all securities in proportion to their market values.C. that need not be well-diversified.D. that is well-diversified and lies on the SML.E. that is unobservable.44. Imposing the no-arbitrage condition on a single-factor security market implies which of the following statements?I) the expected return-beta relationship is maintained for all but a small number ofwell-diversified portfolios.II) the expected return-beta relationship is maintained for all well-diversified portfolios.III) the expected return-beta relationship is maintained for all but a small number of individual securities.IV) the expected return-beta relationship is maintained for all individual securities.A. I and III are correct.B. I and IV are correct.C. II and III are correct.D. II and IV are correct.E. Only I is correct.45. Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is 6%, the risk premium on the first factor portfolio is 4% and the risk premium on the second factor portfolio is 3%. If portfolio A has a beta of 1.2 on the first factor and .8 on the second factor, what is its expected return?A. 7.0%B. 8.0%C. 9.2%D. 13.0%E. 13.2%46. The term "arbitrage" refers toA. buying low and selling high.B. short selling high and buying low.C. earning risk-free economic profits.D. negotiating for favorable brokerage fees.E. hedging your portfolio through the use of options.47. To take advantage of an arbitrage opportunity, an investor wouldI) construct a zero investment portfolio that will yield a sure profit.II) construct a zero beta investment portfolio that will yield a sure profit.III) make simultaneous trades in two markets without any net investment.IV) short sell the asset in the low-priced market and buy it in the high-priced market.A. I and IVB. I and IIIC. II and IIID. I, III, and IVE. II, III, and IV48. The factor F in the APT model representsA. firm-specific risk.B. the sensitivity of the firm to that factor.C. a factor that affects all security returns.D. the deviation from its expected value of a factor that affects all security returns.E. a random amount of return attributable to firm events.49. In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of σ(e i) equal to 25% and 50 securities?A. 12.5%B. 625%C. 0.5%D. 3.54%E. 14.59%50. In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of σ(e i) equal to 20% and 20 securities?A. 12.5%B. 625%C. 4.47%D. 3.54%E. 14.59%51. In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of σ(e i) equal to 20% and 40 securities?A. 12.5%B. 625%C. 0.5%D. 3.54%E. 3.16%52. In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of σ(e i) equal to 18% and 250 securities?A. 1.14%B. 625%C. 0.5%D. 3.54%E. 3.16%53. Which of the following is true about the security market line (SML) derived from the APT?A. The SML has a downward slope.B. The SML for the APT shows expected return in relation to portfolio standard deviation.C. The SML for the APT has an intercept equal to the expected return on the market portfolio.D. The benchmark portfolio for the SML may be any well-diversified portfolio.E. The SML is not relevant for the APT.54. Which of the following is false about the security market line (SML) derived from the APT?A. The SML has a downward slope.B. The SML for the APT shows expected return in relation to portfolio standard deviation.C. The SML for the APT has an intercept equal to the expected return on the market portfolio.D. The benchmark portfolio for the SML may be any well-diversified portfolio.E. The SML has a downward slope, the SML for the APT shows expected return in relation to portfolio standard deviation, and the SML for the APT has an intercept equal to the expected return on the market portfolio are all false.55. If arbitrage opportunities are to be ruled out, each well-diversified portfolio's expected excess return must beA. inversely proportional to the risk-free rate.B. inversely proportional to its standard deviation.C. proportional to its weight in the market portfolio.D. proportional to its standard deviation.E. proportional to its beta coefficient.56. Suppose you are working with two factor portfolios, Portfolio 1 and Portfolio 2. The portfolios have expected returns of 15% and 6%, respectively. Based on this information, what would be the expected return on well-diversified portfolio A, if Ahas a beta of 0.80 on the first factor and 0.50 on the second factor? The risk-free rate is 3%.A. 15.2%B. 14.1%C. 13.3%D. 10.7%E. 8.4%57. Which of the following is (are) true regarding the APT?I) The Security Market Line does not apply to the APT.II) More than one factor can be important in determining returns.III) Almost all individual securities satisfy the APT relationship.IV) It doesn't rely on the market portfolio that contains all assets.A. II, III, and IVB. II and IVC. II and IIID. I, II, and IVE. I, II, III, and IV58. In a factor model, the return on a stock in a particular period will be related toA. factor risk.B. non-factor risk.C. standard deviation of returns.D. both factor risk and non-factor risk.E. There is no relationship between factor risk, risk premiums, and returns.59. Which of the following factors did Chen, Roll and Ross not include in their multifactor model?A. Change in industrial productionB. Change in expected inflationC. Change in unanticipated inflationD. Excess return of long-term government bonds over T-billsE. Neither the change in industrial production, change in expected inflation, change in unanticipated inflation, nor excess return of long-term government bonds over T-bills were included in their model.60. Which of the following factors did Chen, Roll and Ross include in their multifactor model?A. Change in industrial wasteB. Change in expected inflationC. Change in unanticipated inflationD. Change in expected inflation and Change in unanticipated inflationE. All of these factors were included in their model61. Which of the following factors were used by Fama and French in their multi-factor model?A. Return on the market index.B. Excess return of small stocks over large stocks.C. Excess return of high book-to-market stocks over low book-to-market stocks.D. All of these factors were included in their model.E. None of these factors were included in their model.62. Consider the single-factor APT. Stocks A and B have expected returns of 12% and 14%, respectively. The risk-free rate of return is 5%. Stock B has a beta of 1.2. If arbitrage opportunities are ruled out, stock A has a beta of __________.A. 0.67B. 0.93C. 1.30D. 1.69E. 1.2763. Consider the one-factor APT. The standard deviation of returns on a well-diversified portfolio is 19%. The standard deviation on the factor portfolio is 12%. The beta of thewell-diversified portfolio is approximately __________.A. 1.58B. 1.13C. 1.25D. 0.76E. 1.4264. Black argues that past risk premiums on firm-characteristic variables, such as those described by Fama and French, are problematic because ________.A. they may result from data snoopingB. they are sources of systematic riskC. they can be explained by security characteristic linesD. they are more appropriate for a single-factor modelE. they are macroeconomic factors65. Multifactor models seek to improve the performance of the single-index model byA. modeling the systematic component of firm returns in greater detail.B. incorporating firm-specific components into the pricing model.C. allowing for multiple economic factors to have differential effects.D. modeling the systematic component of firm returns in greater detail, incorporatingfirm-specific components into the pricing model, and allowing for multiple economic factors to have differential effects.E. none of these statements are true.66. Multifactor models such as the one constructed by Chen, Roll, and Ross, can better describe assets' returns byA. expanding beyond one factor to represent sources of systematic risk.B. using variables that are easier to forecast ex ante.C. calculating beta coefficients by an alternative method.D. using only stocks with relatively stable returns.E. ignoring firm-specific risk.67. Consider the multifactor model APT with three factors. Portfolio A has a beta of 0.8 on factor 1, a beta of 1.1 on factor 2, and a beta of 1.25 on factor 3. The risk premiums on the factor 1, factor 2, and factor 3 are 3%, 5% and 2%, respectively. The risk-free rate of return is 3%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.A. 13.5%B. 13.4%C. 16.5%D. 23.0%E. 11.6%68. Consider the multifactor APT. The risk premiums on the factor 1 and factor 2 portfolios are 6% and 4%, respectively. The risk-free rate of return is 4%. Stock A has an expected return of 16% and a beta on factor 1 of 1.3. Stock A has a beta on factor 2 of ________.A. 1.33B. 1.05C. 1.67D. 2.00E. .95。

CHAPTER 10: ARBITRAGE PRICING THEORY ANDMULTIFACTOR MODELS OF RISK AND RETURN PROBLEM SETS1. The revised estimate of the expected rate of return on the stock would be the oldestimate plus the sum of the products of the unexpected change in each factor times the respective sensitivity coefficient:Revised estimate = 12% + [(1 × 2%) + (0.5 × 3%)] = 15.5%Note that the IP estimate is computed as: 1 × (5% - 3%), and the IR estimate iscomputed as: 0.5 × (8% - 5%).2. The APT factors must correlate with major sources of uncertainty, i.e., sources ofuncertainty that are of concern to many investors. Researchers should investigatefactors that correlate with uncertainty in consumption and investment opportunities.GDP, the inflation rate, and interest rates are among the factors that can be expected to determine risk premiums. In particular, industrial production (IP) is a goodindicator of changes in the business cycle. Thus, IP is a candidate for a factor that is highly correlated with uncertainties that have to do with investment andconsumption opportunities in the economy.3. Any pattern of returns can be explained if we are free to choose an indefinitelylarge number of explanatory factors. If a theory of asset pricing is to have value, itmust explain returns using a reasonably limited number of explanatory variables(i.e., systematic factors such as unemployment levels, GDP, and oil prices).4. Equation 10.11 applies here:E(r p) = r f + βP1 [E(r1 ) −r f ] + βP2 [E(r2 ) – r f]We need to find the risk premium (RP) for each of the two factors:RP1 = [E(r1 ) −r f] and RP2 = [E(r2 ) −r f]In order to do so, we solve the following system of two equations with two unknowns: .31 = .06 + (1.5 ×RP1 ) + (2.0 ×RP2 ).27 = .06 + (2.2 ×RP1 ) + [(–0.2) ×RP2 ]The solution to this set of equations isRP1 = 10% and RP2 = 5%Thus, the expected return-beta relationship isE(r P) = 6% + (βP1× 10%) + (βP2× 5%)5. The expected return for portfolio F equals the risk-free rate since its beta equals 0.For portfolio A, the ratio of risk premium to beta is (12 − 6)/1.2 = 5For portfolio E, the ratio is lower at (8 – 6)/0.6 = 3.33This implies that an arbitrage opportunity exists. For instance, you can create aportfolio G with beta equal to 0.6 (the same as E’s) by combining portfolio A and portfolio F in equal weights. The expected return and beta for portfolio G are then: E(r G) = (0.5 × 12%) + (0.5 × 6%) = 9%βG = (0.5 × 1.2) + (0.5 × 0%) = 0.6Comparing portfolio G to portfolio E, G has the same beta and higher return.Therefore, an arbitrage opportunity exists by buying portfolio G and selling anequal amount of portfolio E. The profit for this arbitrage will ber G – r E =[9% + (0.6 ×F)] − [8% + (0.6 ×F)] = 1%That is, 1% of the funds (long or short) in each portfolio.6. Substituting the portfolio returns and betas in the expected return-beta relationship,we obtain two equations with two unknowns, the risk-free rate (r f) and the factor risk premium (RP):12% = r f + (1.2 ×RP)9% = r f + (0.8 ×RP)Solving these equations, we obtainr f = 3% and RP = 7.5%7. a. Shorting an equally weighted portfolio of the ten negative-alpha stocks andinvesting the proceeds in an equally-weighted portfolio of the 10 positive-alpha stocks eliminates the market exposure and creates a zero-investmentportfolio. Denoting the systematic market factor as R M, the expected dollarreturn is (noting that the expectation of nonsystematic risk, e, is zero):$1,000,000 × [0.02 + (1.0 ×R M)] − $1,000,000 × [(–0.02) + (1.0 ×R M)]= $1,000,000 × 0.04 = $40,000The sensitivity of the payoff of this portfolio to the market factor is zerobecause the exposures of the positive alpha and negative alpha stocks cancelout. (Notice that the terms involving R M sum to zero.) Thus, the systematiccomponent of total risk is also zero. The variance of the analyst’s profit is notzero, however, since this portfolio is not well diversified.For n = 20 stocks (i.e., long 10 stocks and short 10 stocks) the investor willhave a $100,000 position (either long or short) in each stock. Net marketexposure is zero, but firm-specific risk has not been fully diversified. Thevariance of dollar returns from the positions in the 20 stocks is20 × [(100,000 × 0.30)2] = 18,000,000,000The standard deviation of dollar returns is $134,164.b. If n = 50 stocks (25 stocks long and 25 stocks short), the investor will have a$40,000 position in each stock, and the variance of dollar returns is50 × [(40,000 × 0.30)2] = 7,200,000,000The standard deviation of dollar returns is $84,853.Similarly, if n = 100 stocks (50 stocks long and 50 stocks short), the investorwill have a $20,000 position in each stock, and the variance of dollar returns is100 × [(20,000 × 0.30)2] = 3,600,000,000The standard deviation of dollar returns is $60,000.Notice that, when the number of stocks increases by a factor of 5 (i.e., from 20 to 100), standard deviation decreases by a factor of 5= 2.23607 (from$134,164 to $60,000).8. a. )(σσβσ2222e M +=88125)208.0(σ2222=+×=A50010)200.1(σ2222=+×=B97620)202.1(σ2222=+×=Cb. If there are an infinite number of assets with identical characteristics, then awell-diversified portfolio of each type will have only systematic risk since thenonsystematic risk will approach zero with large n. Each variance is simply β2 × market variance:222Well-diversified σ256Well-diversified σ400Well-diversified σ576A B C;;;The mean will equal that of the individual (identical) stocks.c. There is no arbitrage opportunity because the well-diversified portfolios allplot on the security market line (SML). Because they are fairly priced, there isno arbitrage.9. a. A long position in a portfolio (P) composed of portfolios A and B will offer anexpected return-beta trade-off lying on a straight line between points A and B.Therefore, we can choose weights such that βP = βC but with expected returnhigher than that of portfolio C. Hence, combining P with a short position in Cwill create an arbitrage portfolio with zero investment, zero beta, and positiverate of return.b. The argument in part (a) leads to the proposition that the coefficient of β2must be zero in order to preclude arbitrage opportunities.10. a. E(r) = 6% + (1.2 × 6%) + (0.5 × 8%) + (0.3 × 3%) = 18.1%b.Surprises in the macroeconomic factors will result in surprises in the return ofthe stock:Unexpected return from macro factors =[1.2 × (4% – 5%)] + [0.5 × (6% – 3%)] + [0.3 × (0% – 2%)] = –0.3%E(r) =18.1% − 0.3% = 17.8%11. The APT required (i.e., equilibrium) rate of return on the stock based on r f and thefactor betas isRequired E(r) = 6% + (1 × 6%) + (0.5 × 2%) + (0.75 × 4%) = 16% According to the equation for the return on the stock, the actually expected return on the stock is 15% (because the expected surprises on all factors are zero bydefinition). Because the actually expected return based on risk is less than theequilibrium return, we conclude that the stock is overpriced.12. The first two factors seem promising with respect to the likely impact on the firm’scost of capital. Both are macro factors that would elicit hedging demands acrossbroad sectors of investors. The third factor, while important to Pork Products, is a poor choice for a multifactor SML because the price of hogs is of minor importance to most investors and is therefore highly unlikely to be a priced risk factor. Betterchoices would focus on variables that investors in aggregate might find moreimportant to their welfare. Examples include: inflation uncertainty, short-terminterest-rate risk, energy price risk, or exchange rate risk. The important point here is that, in specifying a multifactor SML, we not confuse risk factors that are important toa particular investor with factors that are important to investors in general; only the latter are likely to command a risk premium in the capital markets.13. The formula is ()0.04 1.250.08 1.50.02.1717%E r =+×+×==14. If 4%f r = and based on the sensitivities to real GDP (0.75) and inflation (1.25),McCracken would calculate the expected return for the Orb Large Cap Fund to be:()0.040.750.08 1.250.02.040.0858.5% above the risk free rate E r =+×+×=+=Therefore, Kwon’s fundamental analysis estimate is congruent with McCracken’sAPT estimate. If we assume that both Kwon and McCracken’s estimates on the return of Orb’s Large Cap Fund are accurate, then no arbitrage profit is possible.15. In order to eliminate inflation, the following three equations must be solvedsimultaneously, where the GDP sensitivity will equal 1 in the first equation,inflation sensitivity will equal 0 in the second equation and the sum of the weights must equal 1 in the third equation.1.1.250.75 1.012.1.5 1.25 2.003.1wx wy wz wz wy wz wx wy wz ++=++=++=Here, x represents Orb’s High Growth Fund, y represents Large Cap Fund and z represents Utility Fund. Using algebraic manipulation will yield wx = wy = 1.6 and wz = -2.2.16. Since retirees living off a steady income would be hurt by inflation, this portfoliowould not be appropriate for them. Retirees would want a portfolio with a return positively correlated with inflation to preserve value, and less correlated with the variable growth of GDP. Thus, Stiles is wrong. McCracken is correct in that supply side macroeconomic policies are generally designed to increase output at aminimum of inflationary pressure. Increased output would mean higher GDP, which in turn would increase returns of a fund positively correlated with GDP.17. The maximum residual variance is tied to the number of securities (n ) in theportfolio because, as we increase the number of securities, we are more likely to encounter securities with larger residual variances. The starting point is todetermine the practical limit on the portfolio residual standard deviation, σ(e P ), that still qualifies as a well-diversified portfolio. A reasonable approach is to compareσ2(e P) to the market variance, or equivalently, to compare σ(e P) to the market standard deviation. Suppose we do not allow σ(e P) to exceed pσM, where p is a small decimal fraction, for example, 0.05; then, the smaller the value we choose for p, the more stringent our criterion for defining how diversified a well-diversified portfolio must be.Now construct a portfolio of n securities with weights w1, w2,…,w n, so that Σw i =1. The portfolio residual variance is σ2(e P) = Σw12σ2(e i)To meet our practical definition of sufficiently diversified, we require this residual variance to be less than (pσM)2. A sure and simple way to proceed is to assume the worst, that is, assume that the residual variance of each security is the highest possible value allowed under the assumptions of the problem: σ2(e i) = nσ2MIn that case σ2(e P) = Σw i2 nσM2Now apply the constraint: Σw i2 nσM2 ≤ (pσM)2This requires that: nΣw i2 ≤ p2Or, equivalently, that: Σw i2 ≤ p2/nA relatively easy way to generate a set of well-diversified portfolios is to use portfolio weights that follow a geometric progression, since the computations then become relatively straightforward. Choose w1 and a common factor q for the geometric progression such that q < 1. Therefore, the weight on each stock is a fraction q of the weight on the previous stock in the series. Then the sum of n terms is:Σw i= w1(1– q n)/(1– q) = 1or: w1 = (1– q)/(1– q n)The sum of the n squared weights is similarly obtained from w12 and a common geometric progression factor of q2. ThereforeΣw i2 = w12(1– q2n)/(1– q 2)Substituting for w1 from above, we obtainΣw i2 = [(1– q)2/(1– q n)2] × [(1– q2n)/(1– q 2)]For sufficient diversification, we choose q so that Σw i2 ≤ p2/nFor example, continue to assume that p = 0.05 and n = 1,000. If we chooseq = 0.9973, then we will satisfy the required condition. At this value for q w1 = 0.0029 and w n = 0.0029 × 0.99731,000In this case, w1 is about 15 times w n. Despite this significant departure from equal weighting, this portfolio is nevertheless well diversified. Any value of q between0.9973 and 1.0 results in a well-diversified portfolio. As q gets closer to 1, theportfolio approaches equal weighting.18. a. Assume a single-factor economy, with a factor risk premium E M and a (large)set of well-diversified portfolios with beta βP. Suppose we create a portfolio Zby allocating the portion w to portfolio P and (1 – w) to the market portfolioM. The rate of return on portfolio Z is:R Z = (w × R P) + [(1 – w) × R M]Portfolio Z is riskless if we choose w so that βZ = 0. This requires that:βZ = (w × βP) + [(1 – w) × 1] = 0 ⇒w = 1/(1 – βP) and (1 – w) = –βP/(1 – βP)Substitute this value for w in the expression for R Z:R Z = {[1/(1 – βP)] × R P} – {[βP/(1 – βP)] × R M}Since βZ = 0, then, in order to avoid arbitrage, R Z must be zero.This implies that: R P = βP × R MTaking expectations we have:E P = βP × E MThis is the SML for well-diversified portfolios.b. The same argument can be used to show that, in a three-factor model withfactor risk premiums E M, E1 and E2, in order to avoid arbitrage, we must have:E P = (βPM × E M) + (βP1 × E1) + (βP2 × E2)This is the SML for a three-factor economy.19. a. The Fama-French (FF) three-factor model holds that one of the factors drivingreturns is firm size. An index with returns highly correlated with firm size (i.e.,firm capitalization) that captures this factor is SMB (small minus big), thereturn for a portfolio of small stocks in excess of the return for a portfolio oflarge stocks. The returns for a small firm will be positively correlated withSMB. Moreover, the smaller the firm, the greater its residual from the othertwo factors, the market portfolio and the HML portfolio, which is the returnfor a portfolio of high book-to-market stocks in excess of the return for aportfolio of low book-to-market stocks. Hence, the ratio of the variance of thisresidual to the variance of the return on SMB will be larger and, together withthe higher correlation, results in a high beta on the SMB factor.b.This question appears to point to a flaw in the FF model. The model predictsthat firm size affects average returns so that, if two firms merge into a largerfirm, then the FF model predicts lower average returns for the merged firm.However, there seems to be no reason for the merged firm to underperformthe returns of the component companies, assuming that the component firmswere unrelated and that they will now be operated independently. We mighttherefore expect that the performance of the merged firm would be the sameas the performance of a portfolio of the originally independent firms, but theFF model predicts that the increased firm size will result in lower averagereturns. Therefore, the question revolves around the behavior of returns for aportfolio of small firms, compared to the return for larger firms that resultfrom merging those small firms into larger ones. Had past mergers of smallfirms into larger firms resulted, on average, in no change in the resultantlarger firms’ stock return characteristics (compared to the portfolio of stocksof the merged firms), the size factor in the FF model would have failed.Perhaps the reason the size factor seems to help explain stock returns is that,when small firms become large, the characteristics of their fortunes (andhence their stock returns) change in a significant way. Put differently, stocksof large firms that result from a merger of smaller firms appear empirically tobehave differently from portfolios of the smaller component firms.Specifically, the FF model predicts that the large firm will have a smaller riskpremium. Notice that this development is not necessarily a bad thing for thestockholders of the smaller firms that merge. The lower risk premium may bedue, in part, to the increase in value of the larger firm relative to the mergedfirms.CFA PROBLEMS1. a. This statement is incorrect. The CAPM requires a mean-variance efficientmarket portfolio, but APT does not.b.This statement is incorrect. The CAPM assumes normally distributed securityreturns, but APT does not.c. This statement is correct.2. b. Since portfolio X has β = 1.0, then X is the market portfolio and E(R M) =16%.Using E(R M ) = 16% and r f = 8%, the expected return for portfolio Y is notconsistent.3. d.4. c.5. d.6. c. Investors will take on as large a position as possible only if the mispricingopportunity is an arbitrage. Otherwise, considerations of risk anddiversification will limit the position they attempt to take in the mispricedsecurity.7. d.8. d.。