13. According to the theory of arbitrage:

a.High-beta stocks are consistently overpriced.

b. Low-beta stocks are consistently overpriced

c. Positive alpha investment opportunities will quickly disappear.

d. Rational investors will pursue arbitrage consistent with their risk tolerance.

14. An investor takes as large a position as possible when an equilibrium price relationship is violated. This is an example of:

a.A dominance argument.

b. The mean-variance efficient frontier.

c.Arbitrage activity.

d. The capital asset pricing model.

15. The security market line depicts:

a.A securitys expected return as a function of its systematic risk.

b. The market portfolio as the optimal portfolio of risky securities.

c.The relationship between a securitys return and the return on an index.

d. The complete portfolio as a combination of the market portfolio and the risk-free asset.

16. The variable (A) in the utility formula represents the:

a.Investors return requirement.

b. Investors aversion to risk.

c.Certainty equivalent rate of the portfolio.

d. Preference for one unit of return per four units of risk.

17. The standard deviation of a portfolio of assets:

a.Increases as the number of assets in the portfolio increases.

b. Increases as the weight in any particular asset increases.

c.Increases as the standard deviation of the assets changes through time.

d. Increases as the assets expected return increase.e. Increases as the assets covariance increase.