Reference no: EM133060472

1.You are considering a 2-factor model using the Arbitrage Pricing Theory (APT) to price a stock. You determine that the risk premiums on the two factors are 6% and 4% respectively. You are also aware that the risk free rate is 4%. If the stock you are examining has a beta on factor 1 of 1.3, and an expected return of 16%, what is the beta on factor 2?

a. 1.67
b.0
c. 1.33
d. 2.00
e. 1.05

2.Based on the mean-variance criterion, which of the following portfolios is considered more superior to (i.e. dominates) the other portfolios.

a return = 0.10; std dev = 0.25
b. return = 0.10; std dev = 0.20
c Can't be determined
d. return = 0.15; std dev = 0.25
e return = 0.15; std dev = 0.20

3.We can represent the return-Beta relationship, according to the CAPM model using the:

a. Capital Market Line (CML)
b. Security Market Line (SML)
c. Efficient frontier with a risk-free asset
d. Efficient frontier
e. Risk-free rate