課程名稱︰投資學
課程性質︰選修
課程教師︰莊文議
開課學院：管理學院
開課系所︰財金系
考試日期（年月日）︰99年6月24日
考試時限（分鐘）：140分
是否需發放獎勵金：是
（如未明確表示，則不予發放）
試題 :
Multiple Choice Questions: 2 points for each question
1. Adding additional risky assets to the investment opportunity set will
generally move the efficient frontier _____ and to the _____.
a. Down, right
b. Up, right
c. Down, left
d. Up, left
2. Suppose that a stock portfolio and a bond portfolio have a zero correlation.
This means that
a. The returns on the stock and bond portfolio tend to move inversely
b. The returns on the stock and bond portfolio tend to vary independently of
each other
c. The returns on the stock and bond portfolio tend to move together
d. The covariance of the stock and bond portfolio will be positive
3. You put half of your money in a stock portfolio that has an expected return
of 14% and a standard deviation of 24%. You put the rest of your money in a
risky bond portfolio that has an expected return of 6% and standard deviation
of 12%. The stock and bond portfolio have a correlation 0.55. The standard
deviation of the resulting portfolio will be _____.
a. More than 18% but less than 24%
b. Equal to 18%
c. Less than 18%
d. Zero
4. The standard deviation of return on investment A is .10 while the standard
deviation of return on investment B is .04. If the correlation coefficient
between the returns on A and B is -.50, the covariance of returns on A and B
is _____.
a. -.0447
b. -.0020
c. .0020
d. .0447
5. A stock has a correlation with the market of 0.45. The standard deviation
of the market is 21% and the standard deviation of the stock is 35%. What is
the stock's beta?
a. 1.00
b. 0.75
c. 0.60
d. 0.55
**Use the following figures for questions 6 and 7:
The figures below show plots of monthly excess returns for two stocks plotted
against excess returns for a market index.
Excess Returns Stock A
┌───────┬───────┐
│ │ │
├───────┼───●───┤
│ │ │
├───────┼───────┤
│ │ │ ┌────┐
RA-rf├───────●───────┤ │●rm-rf │
│ ● ● │ │ └────┘
├─┬─┬─┬─┼─┬─┬─┬─┤
│ │ ● │
├───●───┼───────┤
│ │ ● │
└───────┴───────┘
RM-rf
Excess Returns Stock B
┌───────┬───────┐
│ │ │
├───────┼───────┤
│ │ ● │
├───────┼───●───┤
│ │ ● │ ┌────┐
RB-rf├───────●───────┤ │●rm-rf │
│ ● │ │ └────┘
├─┬─●─┬─┼─┬─┬─┬─┤
│ ● │ │
├───────┼───────┤
│ │ │
└───────┴───────┘
RM-rf
6. Which stock is risker for an investor curretly holding his portfolio in a
well diversified portfolio of common stock?
a. Stock A is riskier
b. Stock B is riskier
c. Both stocks are equally risky
d. You cannot tell from the information given
7. Which stock is riskier to a non-diversified investor who puts all his money
in only one of these stocks?
a. Stock A is riskier
b. Stock B is riskier
c. Both stocks are equally risky
d. You cannot tell from the information given
8. The standard deviation of return on investment A is .10 while the standard
deviation of return on investment B is .05. If the covariance of returns on A
and B is .0030, the correlation coefficient between the returns on A and B is
_____.
a. .12
b. .36
c. .60
d. .77
9. Which of the following provides the best example of a systematic risk event?
a. A strike by union workers hurts a firm's quarterly earnings
b. Mad Cow disease in Montana hurts local ranchers and buyers of beef
c. The Federal Reserve increases interest rates 50 basis points
d. A senior executive at a firm embezzles $10 million and escapes to South
America.
10. A security's beta coefficient will be negative if _____.
a. Its returns are negatively correlated with market index returns
b. Its returns are positively correlated with market index returns
c. Its stock price has historically been very stable
d. Market demand for the firm's shares is very low
11. Which of the following are assumptions of the simple CAPM model?
Ⅰ. Individual trades of investors do not affect a stock's price
Ⅱ. All investors plan for one identical holding period
Ⅲ. All investors analyze securities in the same way and share the same
economic view of the world
Ⅳ. All investors have the same level of risk aversion
a. Ⅰ,Ⅱ and Ⅳ only
b. Ⅰ,Ⅱ and Ⅲ only
c. Ⅱ,Ⅲ and Ⅳ only
d. Ⅰ,Ⅱ,Ⅲ and Ⅳ
12. Consider the CAPM. The expected return on the market is 18%. The expected
return on a stock with a beta of 1.2 is 20%. What is the risk-free rate?
a. 2%
b. 6%
c. 8%
d. 12%
13. According to the capital asset pricing model, a security with a _____.
a. Negative alpha is considered a good buy
b. Positive alpha is considered overpriced
c. Positive alpha is considered underpriced
d. Zero alpha is considered a good buy
14. You have a $50,000 portfolio consisting of Intel, GE and Con Edison. You
put $20,000 in Intel, $12,000 in GE and the rest in Con Edison. Intel, GE and
Con Edison have betas of 1.3, 1.0 and 0.8 respectively. What is your portfolio
beta?
a. 1.048
b. 1.033
c. 1.000
d. 1.037
15. Consider the multi-factor APT with two factors. Portfolio A has a beta of
0.5 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the
factors 1 and 2 portfolios are 1% and 7% respectively. The risk-free rate of
return is 7%. The expected return on portfolio A is _____ if no arbitrage
opportunities exist.
a. 13.5%
b. 15.0%
c. 16.25%
d. 23.0%
16. Assume that both X and Y are well-diversified portfolios and the risk-free
rate is 8%. Portfolio X has an expected return of 14% and a beta of 1.00.
Portfolio Y has an expected return of 9.5% and a beta of 0.25. In this
situation, you would conclude that portfolios X and Y _____.
a. Are in equilibrium
b. Offer an arbitrage opportunity
c. Are both underpriced
d. Are both fairly priced
17. The risk-free rate is 4%. The expected market rate of return is 11%. If you
expect stock X with a beta of .8 to offer a rate of return of 12%, then you
should _____.
a. Buy stock X because it is overpriced
b. Buy stock X because it is underpriced
c. Sell short stock X because it is overpriced
d. Sell short stock X because it is underpriced
18. An important characteristic of market equilibrium is _____.
a. The presence of many opportunities for creating zero-investment portfolios
b. All investors exhibit the same degree of risk aversion
c. The absence of arbitrage opportunities
d. The a lack of liquidity in the market
19. Consider the non-factor APT. The standard deviation of return on a well-
diversified portfolio is 20%. The standard deviation on the factor portfolio
is 12%. The beta of the well-diversified portfolio is approximately _____.
a. 0.60
b. 1.00
c. 1.67
d. 3.20
20. Consider the single factor APT. Portfolio A has a beta of 1.3 and an
expected return of 21%. Portfolio B has a beta of 0.7 and an expected return of
17%. The risk-free rate of return is 8%. If you wanted to take advantage of an
arbitrage opportunity, you should take a short position in portfolio _____ and
a long position in portfolio _____.
a. A,A
b. A,B
c. B,A
d. B,B
21. Joe bought a stock at $57 per share. The price promptly fell to $55. Joe
held on to the stock until it again reached $57 and then he sold once he had
eliminated his loss. If enough people repeatedly behave this way this may be
evidence that the markets are
a. Strong form efficient
b. Weak form inefficient
c. Strong form inefficient
d. Semi-strong form efficient
22. J.M. Keyes put all his money in one stock and the stock doubled in value in
a matter of months. He did this three times in a row with three different stock
. J.M. got his picture on the front page of the Wall Street Journal. However
the paper never mentioned the thousands of investors who made similar bets on
other stocks and lost most of their money. This is an example of the _____
problem in deciding how efficient the markets are.
a. Magnitude
b. Selection bias
c. Lucky event
d. Small firm
23. Important characteristic(s) of market efficiency is that _____.
Ⅰ. There are no arbitrage opportunities
Ⅱ. Security prices react quickly to new information
Ⅲ. Active trading strategies will not consistently outperform passive
strategies
a. Ⅰ only
b. Ⅱ only
c. Ⅰ and Ⅲ only
d. Ⅰ,Ⅱ and Ⅲ
24. Insiders are able to profitably trade and earn abnormal returns prior to
the announcement of positive news. This is a deviation of which form of
efficiency?
a. Weak form efficiency
b. Semi-strong form efficiency
c. Strong form efficiency
d. Technical analysis
25. The tendency of poorly performing stocks and well performing stocks in one
period to continue their performance into the next period is called the _____.
a. Fad effect
b. Martingale effect
c. Momentum effect
d. Reversal effect
26. Evidence supporting semi-strong form market efficiency suggests that
investors should _____.
a. Rely on technical analysis to select securities
b. Rely on fundamental analysis to select securities
c. Use a passive trading strategy such as purchasing an index fund or an ETF
d. Select securities by throwing darts at the financial pages of the newspaper
27. The small firm in January effect is strongest _____.
a. Early in the month
b. In the middle of the month
c. Late in the month
d. In even numbered years
28. Which of the following statements is/are correct?
a. If a market is weak form efficient it is also semi- and strong form
efficient
b. If a market is semi-strong efficient it is also strong form efficient
c. If a market is strong form efficient it is also semi-strong but not weak
form efficient
d. If a market is strong form efficient it is also semi- and weak form
efficient
29. You wish to earn a return of 10% on each of two stocks, A and B. Each of
the stocks is expected to pay a dividend of $4 in the upcoming year. The
expected growth rate of dividends is 6% for stock A and 5% for stock B. Using
the constant growth DDM, the intrinsic value of stock A _____.
a. Will be higher than the intrinsic value of stock B
b. Will be the same as the intrinsic value of stock B
c. Will be less than the intrinsic value of stock B
d. More information is necessary to Answer this question
30. Eagle Brand Arrowheads has expected earnings of $1.25 per share and a
market capitalization rate of 12%. Earnings are expected to grow at 5% per year
indefinitely. The firm has a 40% plowback ratio. By how much does the firm's
ROE exceed the market capitalization rate?
a. 0.5%
b. 1.0%
c. 1.5%
d. 2.0%
31. Interior Airline is expected to pay a dividend of $3 in the upcoming year.
Dividends are expected to grow at the rate of 10% per year. The risk-free rate
of return is 4% and the expected return on the market portfolio is 13%. The
stock of Interior Airline has a beta of 4.00. Using the constant growth DDM,
the intrinsic value of the stock is _____.
a. $10.00
b. $22.73
c. $27.78
d. $41.67
32. A firm increases its dividend plowback ratio. All else equal you know that
_____.
a. Earnings growth will decrease and the stock's P/E will increase
b. Earnings growth will increase and the stock's P/E will decrease
c. Earnings growth will decrease and the stock's P/E will decrease
d. Earnings growth will increase and the stock's P/E may or may not increase
33. Google's share price was $475 per share on January 11, 2006. Google had a
P/E ratio of about 68 and an estimated market capitalization rate of 11.5%.
Google pays no dividends. What percentage of Google's stock price is
represented by PVGO?
a. 92%
b. 87%
c. 77%
d. 64%
34. The market capitalization rate on the stock of Aberdeen Wholesale Company
is 10%. Its expected ROE is 12% and its expected EPS is $5.00. If the firm's
plow-back ratio is 60%, its P/E ratio will be _____.
a. 7.14
b. 14.29
c. 16.67
d. 22.22
35. The constant growth dividend discount model (DDM) can be used only when
the _____.
a. Growth rate is less than or equal to the required return
b. Growth rate is greater than or equal to the required return
c. Growth rate is less than the required return
d. Growth rate is greater than the required return
Calculation Questions: 6 points for each question
(Note: No calculation process gets zero point.)
1. Investors expect the market rate of return this year to be 10%. The expected
rate of return on a stock with a beta of 1.2 is currently 12%. If the market
return this year turns out to be 8%, how would you revise your expectation of
the rate of return on the stock?
2. Suppose that many stocks are traded in the market and that it is possible to
borrow at the risk-free rate, Rf. The characteristics of two of the stocks are
as follows:
────────────────────────────────────
Stock Expected Return Standard Deviation
────────────────────────────────────
A 8% 40%
B 13% 60%
Correlation=-1
────────────────────────────────────
Could the equilibrium Rf be greater than 10%?
*Hint: Can a particular stock portfolio be substituted for the risk-free asset?
3. Assume both portfolios A and B are well diversified. That E(Ra)=14% and
E(Rb)=14.8%. If the economy has only one factor, and βa = 1.0 while βb = 1.1,
what must be the risk-free rate?
4. Two investment advisers are comparing performance. One averaged a 19% return
and the other a 16% return. However, the beta of the first adviser was 1.5,
while that of the second was 1.0.
a.If the T-bill rate were 6%, and the market return during the period were 14%,
which adviser would be the superior stock selector?
b.What if the T-bill rate were 3% and the market return 15%?
5.Even Better Products has come out with a new and improved product. As a
result, the firm projects an ROE of 20%, and it will maintain a plowback ratio
of 0.30. Its earnings this year will be $2 per share. Investors expect a 12%
rate of return on the stock.
a.At what price and P/E ratio would you expect the firm to sell?
b.What is the present value of growth opportunities?
c.What would be the P/E ratio and the present value of growth opportunities if
the firm planned to reinvest only 20% of its earnings?
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