An implication of the efficient markets

QUESTION 1An implication of the efficient markets is that __________.1. high book to market ratio stocks are consistently better performers2. low beta stocks are consistently overpriced3. stock prices will appear to follow a random walk4. growth stocks are better buys than value stocks1 pointsQUESTION 2Empirical tests of the strong-form version of the efficient market hypothesis indicate that ______________ are generally able to achieve superior returns.1. hedge fund managers2. professional money managers3. stock exchange specialists4. company insiders1 pointsQUESTION 3Investors following what other investors are buying or selling is an example of _________.1. Herding2. mental accounting3. overconfidence4. loss aversion1 pointsQUESTION 4Some researchers have found that portfolios of stocks with low P/E ratios ______________. 1. outperform stocks with high P/E ratios2. underperform stocks with high P/E ratios3. tend to have the same returns as stocks with high P/E ratios4. are uncorrelated with returns for high P/E stocks1 pointsQUESTION 5Some researchers have found that portfolios of stocks with small market values ______________.1. outperform stocks with large market values2. underperform stocks with large market values3. tend to have the same returns as stocks with large market values4. are uncorrelated with returns for large market value stocks1 pointsQUESTION 6The finding that men trade far more actively than women is related to the behavioral finance study of ______________.1. market inefficiency2. conservatism3. mental accounting4. overconfidence1 pointsQUESTION 7The value or book-to-market effect refers to the finding that firms with high ratios of book value to market value (B/M) (or similarly low ratios of market value to book value (M/B)) tend to have annual returns ______________ returns for firms with lower ratios.1. less than2. greater than3. equal to4. unrelated to1 pointsQUESTION 8A portfolio on the capital allocation or capital market line with returns greater than the returns on the market or optimal risky portfolio represents a _____________.1. borrowing portfolio (borrow at the risk-free rate and then buy the risky asset on margin)2. lending porfolio (buy the risk-free asset, which is lending to the government, in combination with the risky asset)3. unacheivable portfolio1 pointsQUESTION 9A risky portfolio has an expected rate of return of 15% and a standard deviation of 20%. The Treasury bill rate is 4%. What is the Sharpe (reward-to-volatility) ratio for the portfolio?1. 0.552. 0.753. 0.804. 0.95S = [E(r) – rf]/?Your Risky Portfolio: SP = [0.15 – 0.04]/0.20 = 0.551 pointsQUESTION 10A stock has an estimated rate of return of 15.5% and a beta of 1.5. The market expected rate of return is 10% and the risk-free rate is 3%. The alpha of the stock is ______________.1. -2%2. 0%3. 2%4. 3%Alpha = 15.5 – [3+1.5*(10-3)]= 21 pointsQUESTION 11According to the CAPM, overvalued securities will have ______________.1. large betas2. positive alphas3. zero alphas4. negative alphas1 pointsQUESTION 12Investors should use a portfolio approach to investing to ____________.1. reduce risk2. monitor risk3. eliminate risk1 pointsQUESTION 13Portfolio managers who wish to maximize risk-adjusted returns will seek to invest more in stocks with __________ .1. low values of Jensen’s alpha2. zero values of Jensen’s alpha3. high values of Jensen’s alpha1 pointsQUESTION 14Security A has a standard deviation of .12 and a correlation coefficient with the market of .6, while security B has a standard deviation of .14 and a correlation coefficient with the market of .5. Which security has a higher beta if the market standard deviation is .13?1. A=0.55382. B=0.538? = Correlation Coefficient × Standard Deviation of Stock Returns between Market and Stock /Standard Deviation of Market ReturnsNot enough information1 pointsQUESTION 15The beta of the market portfolio is _______.1. -1.02. 0.03. 1.04. It has no beta.1 pointsQUESTION 16The line depicting the risk and return of portfolio combinations of the risk-free asset and the market portfolio is the ___________.1. capital allocation line2. capital market line3. security market line4. security characteristic line1 pointsQUESTION 17Two assets are available for you to form an investment portfolio: the risk-free asset has a rate of return of 5% and the market portfolio has an expected return of 15%. How much should you invest in the risk-free asset to achieve a total portfolio expected return of 9%?1. 40%2. 50%3. 60%4. 70%0.09=0.15w+(1-w)0.05=0.041 pointsQUESTION 18What is the CAPM estimated rate of return for a stock with a beta of 1.5 when the market expected rate of return is 10% and the risk-free rate is 3%?1. 10.5%2. 12.0%3. 13.5%4. None of the above0.03+(.10-.03)1.5=0.1351 pointsQUESTION 19Which one of the following stocks is relatively more risky when held in a well-diversified portfolio?Stock XYZ: standard deviation = .12 , beta = .5Stock ABC: standard deviation = .13 , beta = .41. XYZ because its beta is higher.2. XYZ because its standard deviation is higher.3. ABC because its beta is lower.4. ABC because its standard deviation is lower.1 pointsQUESTION 20With respect to the CAPM based model used to predict returns for a stock (shown on the security characteristic line), what is the estimated intercept term?1. Alpha2. Beta3. Delta4. Gamma