1) The hypothesis that states that it is nearly impossible to predict exactly when stocks will do well relative to bonds is known as the: a) fair price hypothesis. b) efficient market hypothesis. c) full information hypothesis. d) arbitrage hypothesis. e) None of the above 2) Which of the following is a drawback to the historical approach of estimating an asset's expected return? a) The risk of the firm may have changed over time. b) History always repeats itself. c) The range of potential outcomes is often very broad. d) All of the above. e) None of the above 3) Given the following levels of risk, which stock should have the highest price if each stock is expected to produce the same level of cash over its future life? Stock A Stock B Stock C a) Stock A b) Stock B Systematic risk units Unsystematic risk units 925 10 3 12 5 300 c) Stock C d) There is not enough information to decide e) None of the above 4) According to the CAPM (capital asset pricing model), what is the single factor that explains differences in returns across securities? a) the expected risk premium on the market portfolio b) the beta of a security c) the expected return on the market portfolio d) the volatility of a security e) None of the above