Test Bank For Investments 9Th Canadian Edition By Bodie

Chapter 09

The Capital Asset Pricing Model

Multiple Choice Questions
1. In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk is
A. unique risk.
B. beta.
C. standard deviation of returns.
D. variance of returns.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

2. In the context of the Capital Asset Pricing Model (CAPM), the relevant risk is
A. unique risk.
B. systematic risk.
C. standard deviation of returns.
D. variance of returns.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

3. In the context of the Capital Asset Pricing Model (CAPM), the relevant risk is
A. unique risk.
B. market risk.
C. standard deviation of returns.
D. variance of returns.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

4. According to the Capital Asset Pricing Model (CAPM), a well diversified portfolio’s rate of return is a function of
A. market risk.
B. unsystematic risk.
C. unique risk.
D. reinvestment risk.
E. None of the options are correct.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

5. According to the Capital Asset Pricing Model (CAPM), a well diversified portfolio’s rate of return is a function of
A. beta risk.
B. unsystematic risk.
C. unique risk.
D. reinvestment risk.
E. None of the options are correct.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

6. According to the Capital Asset Pricing Model (CAPM), a well diversified portfolio’s rate of return is a function of
A. systematic risk.
B. unsystematic risk.
C. unique risk.
D. reinvestment risk.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

7. The market portfolio has a beta of
A. 0.
B. 1.
C. -1.
D. 0.5.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

8. The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to
A. 0.06.
B. 0.144.
C. 0.12.
D. 0.132.
E. 0.18.

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

9. The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of 1.25 is equal to
A. 0.142.
B. 0.144.
C. 0.153.
D. 0.134.
E. 0.117.

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model

10. Which statement is not true regarding the market portfolio?
A. It includes all publicly-traded financial assets.
B. It lies on the efficient frontier.
C. All securities in the market portfolio are held in proportion to their market values.
D. It is the tangency point between the capital market line and the indifference curve.
E. All of the options are true.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 The Capital Asset Pricing Model.
Topic: 09-01 The Capital Asset Pricing Model