
Which statement is false?
The weaker the correlation between two assets, the smaller the rduction of risk attainable by holding positive amounts of these assets in a portfolio.

Undiversified portfolios are suboptimal because
they do not offer higher returns even though they expose investors to unsystematic risk

If one stock's variance and correlation with the market stay fixed, while all other stocks in the market experience an increase in variance but no change in correlation, then the exceptional stock's beta will
decrease

The of a particualr asset equals the covariance of the asset's returns with the returns on overall market portfolio divided by the portfolio's variance
beta

The variance of any twoasset portfolio depends on these factors
the weight invested in each asset, the variance of each asset, the covariance between the two assets

Which of the following characterisitics of return is represented in percent squared units
variance

Rank the following four assets and the inflation rate from high to low in the United Kingdom
stocks, inflaiton, bonds, bills

The "feasible set" and "efficient set" differ because
the feasible set consists of all possible portfolios of assets, whereas the effecient set includes only those portfolios which maximize expected returns for any given level of volatility

If the riskless rate increases the optimal risky portfolio will have a expected return and a standard deviation
higher, higher

Alice is considering two stocks. Stock A has a beta of .8 while stock B has a beta of 1.6. The risk premium is 4%. Alice believes the expected return on stock B would be twice as high as the expected return on A, and therefore she should invest in stock B. Which of the following statements is true?
Alice is incorrect regarding B's expected return; however, B does provide a higher expected return than A.

Goodbuy stock has a beta of 2.5. The expected return on GoodBuy is 28.75%, while the expected return on the market portfolio is only 14%. The riskfree rate is 3%. Because GoodBuy lies the SML, it is considered .
Below, overpriced

If the slope of the Security Market Line is 9% and the expected return on the maret porfolio is 14%, the risk free rate and the market risk premium
is 5%; is 9%

In equilibrium if all investors will hold some combination of the market portfolio and the riskfree asset (according to CAPM) an asset with higher variance and lower expected return than what could be obtained on the CML can survive
if it weakly covaries witht the market

Company XYZ has an Rsquared and beta of .5 and 1.7 respectively, company ABC has an rsquared of beta .7 and .7 respectively. This suggests:
Company XYZ has greater systematic and unsystematic risk than company ABC

The FamaFrench model asserts that a firm's exposure to SMB and HML risk are important in explaining expected returns. Which of the following is consistent with the FF model
a firm that has a positive size beta and a positive booktomarket beta has high expected returns

A portfolio is if it offers the highest expected return among the group of portfolios with equal or less volatility
effecient

The quantifies the relationship between the expected return and standard deviation for portfolios consisting of the riskfree asset and the optimal risky portfolio
CML

What really distinguishes the FamaFrench approach from both the CAPM and the APT is that it is an entirely empirical attempt to model
asset return

Adding real estate should move the effecient frontier relative to including only stocks
up and to the left

When its returns are regrewssed on the market's a stock with a hi beta will have a term in the regression
high slope

The market portfolio includes
All risky assets

Consider an asset that currently plots below the security market line
The asset is underpriced given its level of risk and its price should rise until it plots the SML

Empirical tests have raised concerns about the CAPM, including
The CAPM is silent whether shortterm or longterm risk free rates should be used

Two researches using the CAPM, generate different estimates for the same stock. Examining these results the likely source of the difference is
The researches use different methods for determinig beta

In addition to the marketrisk premium and a market to book facto the FAma French model adds
a smallfirm size factor

In addition to the market risk premium and a firmsize factor the Fama French model adds
a high market to book factor

Why shoyuld practitioners be concerned about the problems of the empirical tests of CAPM
The challanges empirical researches face testing the CAPM are very similar to the challenges practitionars face employing CAPM

