Chapter 08Index Models.docx

Chapter 08Index Models.docx

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Chapter08IndexModels

Chapter08

IndexModels

MultipleChoiceQuestions

1. Asdiversificationincreases,thetotalvarianceofaportfolioapproaches____________. 

A. 0

B. 1

C. thevarianceofthemarketportfolio

D. infinity

E. −1

2. Asdiversificationincreases,thestandarddeviationofaportfolioapproaches____________. 

A. 0

B. 1

C. infinity

D. thestandarddeviationofthemarketportfolio

E. −1

3. Asdiversificationincreases,thefirm-specificriskofaportfolioapproaches____________. 

A. 0

B. 1

C. infinity

D. n−1*n

E. −1

4. Asdiversificationincreases,theunsystematicriskofaportfolioapproaches____________. 

A. 1

B. 0

C. infinity

D. n−1*n

E. −1

5. Asdiversificationincreases,theuniqueriskofaportfolioapproaches____________. 

A. 1

B. 0

C. infinity

D. n−1*n

E. −1

6. Theindexmodelwasfirstsuggestedby____________. 

A. Graham

B. Markowitz

C. Miller

D. Sharpe

E. Jensen

7. Asingle-indexmodeluses__________asaproxyforthesystematicriskfactor. 

A. amarketindex,suchastheS&P500

B. thecurrentaccountdeficit

C. thegrowthrateinGNP

D. theunemploymentrate

E. theinflationrate

8. Betabookstypicallyrelyonthe__________mostrecentmonthlyobservationstocalculateregressionparameters. 

A. 12

B. 36

C. 60

D. 120

E. 6

9. TheindexmodelhasbeenestimatedforstocksAandBwiththefollowingresults:

RA=0.03+0.7RM+eA

RB=0.01+0.9RM+eB

M=0.35（eA）=0.20（eB）=0.10

ThecovariancebetweenthereturnsonstocksAandBis___________. 

A. 0.0384

B. 0.0406

C. 0.1920

D. 0.0772

E. 0.4000

10. Accordingtotheindexmodel,covariancesamongsecuritypairsare 

A. duetotheinfluenceofasinglecommonfactorrepresentedbythemarketindexreturn.

B. extremelydifficulttocalculate.

C. relatedtoindustry-specificevents.

D. usuallypositive.

E. duetotheinfluenceofasinglecommonfactorrepresentedbythemarketindexreturn,andtheyareusuallypositive.

11. Theinterceptintheregressionequationscalculatedbybetabooksisequalto 

A. intheCAPM.

B. +rf（1+）.

C. +rf（1−）.

D. 1−.

E. 1.

12. Analystsmayuseregressionanalysistoestimatetheindexmodelforastock.Whendoingso,theslopeoftheregressionlineisanestimateof______________. 

A. theoftheasset

B. theoftheasset

C. theoftheasset

D. theoftheasset

E. theoftheasset

13. Analystsmayuseregressionanalysistoestimatetheindexmodelforastock.Whendoingso,theinterceptoftheregressionlineisanestimateof______________. 

A. theoftheasset

B. theoftheasset

C. theoftheasset

D. theoftheasset

E. theoftheasset

14. Inafactormodel,thereturnonastockinaparticularperiodwillberelatedto_________. 

A. firm-specificevents

B. macroeconomicevents

C. theerrorterm

D. bothfirm-specificeventsandmacroeconomicevents

E. neitherfirm-specificeventsnormacroeconomicevents

15. RosenbergandGuyfoundthat__________helpedtopredictafirm'sbeta. 

A. thefirm'sfinancialcharacteristics

B. thefirm'sindustrygroup

C. firmsize

D. boththefirm'sfinancialcharacteristicsandthefirm'sindustrygroup

E. thefirm'sfinancialcharacteristics,thefirm'sindustrygroupandfirmsize

16. Iftheindexmodelisvalid,_________wouldbehelpfulindeterminingthecovariancebetweenassetsGMandGE. 

A. GM

B. GE

C. M

D. GM,GE,andME.GE,andM

17. Iftheindexmodelisvalid,_________wouldbehelpfulindeterminingthecovariancebetweenassetsHPQandKMP. 

A. HPQ

B. KMP

C. M

D. HPQ,KMP,andM

E. HPQ,andKMP

18. Iftheindexmodelisvalid,_________wouldbehelpfulindeterminingthecovariancebetweenassetsKandL. 

A. k

B. L

C. M

D. k,L,andM

E. k,andL

19. RosenbergandGuyfoundthat___________helpedtopredictfirms'betas. 

A. debt/assetratios

B. marketcapitalization

C. varianceofearnings

D. debt/assetratios,marketcapitalization,andvarianceofearnings

E. debt/assetratiosandvarianceofearningsonly

20. Ifafirm'sbetawascalculatedas0.6inaregressionequation,acommonlyusedadjustmenttechniquewouldprovideanadjustedbetaof 

A. lessthan0.6butgreaterthanzero.

B. between0.6and1.0.

C. between1.0and1.6.

D. greaterthan1.6.

E. zeroorless.

21. Ifafirm'sbetawascalculatedas0.8inaregressionequation,acommonlyusedadjustmenttechniquewouldprovideanadjustedbetaof 

A. lessthan0.8butgreaterthanzero.

B. between1.0and1.8.

C. between0.8and1.0.

D. greaterthan1.8.

E. zeroorless.

22. Ifafirm'sbetawascalculatedas1.3inaregressionequation,acommonlyusedadjustmenttechniquewouldprovideanadjustedbetaof 

A. lessthan1.0butgreaterthanzero.

B. between0.3and0.9.

C. between1.0and1.3.

D. greaterthan