31. The Security Characteristic Line (SCL)
A.plots the excess return on a security as a function of the excess return on the market.
B.allows one to estimate the beta of the security.
C.allows one to estimate the alpha of the security.
D.all of these.
E.none of these.
32. In a factor model, the return on a stock in a particular period will be related to
C.standard deviation of returns.
D.both a and b are true.
E.none of these are true.
33 Which of the follow ng factors d d Chen, Roll a d Ross not include in their multifactor model?
A.Change in industrial production
B.Change in expected inflation
C.Change in unanticipated inflation
D.Excess return of longterm government bonds over Tbills
E.All of these factors were included in their model.
34. Which of the following factors was used by Fama and French in their multifactor model?
A.Return on the market index
B.Excess return of small stocks over large stocks
C.Excess return of high booktomarket stocks over low booktomarket stocks
D.All of these factors were included in their model.
E.None of these factors were included in their model.
35. The CAPM assumes that the only relevant source of risk arises from
C.variations in stock returns
E.firm return standard deviation
36. Multifactor models seek to improve the performance of the singleindex model by
A.modeling the systematic component of firm returns in greater detail.
B.incorporating firmspecific components into the pricing model.
C.allowing for multiple economic factors to have differential effects
D.all of these are true.
E.none of these are true.
37. The expected impact of unantic pated macroeco omic events on a security’s return during the period
A.included in the security’s expected return.
C.equal to the risk free rate.
D.proportional to the firm’s beta.
38. Covariances between security returns tend to be
A.positive because of SEC regulations.
B.positive because of Exchange regulations.
C.positive because of economic forces that affect many firms.
D.negative because of SEC regulations
E.negative because of economic forces that affect many firms.
39. In the singleindex model represented by the equation ri = E(ri) + βiF + ei, the term ei represents
A.the impact of unanticipated macroeconomic events on security i’s return.
B.the impact of unanticipated firmspecific events on security i’s return.
C.the impact of anticipated macroeconomic events on security i’s return.
D.the impact of anticipated firmspecific events on security i’s return.
E.the impact of changes in the market on security i’s return.
40 Suppose you are do ng a portfol o analysis that i cludes all of the stocks on the TSX. Using a singleindex model rather than the Markowitz model _______ the number of inputs needed from _______ to ________.
A.increases? about 1,400? more than 1.4 million
B.increases? about 10,000? more than 125,000
C.reduces? more than 125,000? about 10,000
D.reduces? more than 2.3 million? about 4,550
E.increases? about 150? more than 1,500
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