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QUESTION 2 The long-term assumption about how an investment will play out over it s entire life is referred to as: a. risk-free rate b.

QUESTION 2

  1. The long-term assumption about how an investment will play out over it s entire life is referred to as:

    a.

    risk-free rate

    b.

    beta

    c.

    market risk premium

    d.

    expected return

QUESTION 3

  1. If you are calculating the expected return for a security for the long-term, the most suitable proxy to use for the risk-free rate is:

    a.

    3-month T-bills of the relevant country

    b.

    6-month T-bills of the relevant country

    c.

    1-year T-bills of the relevant country

    d.

    10-year government bond of the relevant country

QUESTION 4

  1. Regarding risk premium,:

    a.

    investors should only pay a risk premium once the security has been registered in thier name.

    b.

    the premium should be paid annually or semi-annually, depending on the details of the prospectus.

    c.

    the more volatile the asset, the greater the risk premium should be.

    d.

    the less volatile the asset, the greater the risk premium should be.

QUESTION 5

  1. Which of the following is true of the Arbitrage Pricing Theory?

    a.

    APT is less flexible than CAPM in that it considers only market risk, but is more complex to calculate.

    b.

    APT is less flexible than CAPM in that it considers only market risk, but is less complex to calculate.

    c.

    APT is more flexible than CAPM in that it considers other factors than market risk, but is more complex to calculate.

    d.

    CAPM is more flexible than APT in that it considers other factors than market risk, but is more complex to calculate.

QUESTION 1

  1. The Capital Asset Pricing Model shows that the expected return on a security is equal to the risk-free return plus a risk premium. The risk premium is based on:

    a.

    alpha

    b.

    beta

    c.

    delta

    d.

    gamma

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