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Expected Return Quiz

___________ a relationship between expected return and risk.

___________ a relationship between expected return and risk.

In a multi-factor APT model, the coefficients on the macro factors are often called ______.

Which pricing model provides no guidance concerning the determination of the risk premium on factor portfolios?

An arbitrage opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit.

A _________ portfolio is a well-diversified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor.

The exploitation of security mispricing in such a way that risk-free economic profits may be earned is called ___________.

In developing the APT, Ross assumed that uncertainty in asset returns was a result of

Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of 13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio _________ and a long position in portfolio _________.

Consider the one-factor APT. The variance of returns on the factor portfolio is 6%. The beta of a well-diversified portfolio on the factor is 1.1. The variance of returns on the well-diversified portfolio is approximately __________.

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