Question 3 (1 point) Listen If stock returns are modelled as being a random variable, this means that Ostock returns can take on different values stock returns can take on different values and cannot be predicted with certainty stock returns can be predicted with certainty, but it requires extensive market intelligence Question 1 (1 point) Saved Listen What is the advantage of using a factor-based model of individual stock returns to model dependencies between many stocks? a. Factor-based models require far fewer parameters to be estimated b. Covariances between stock returns in a factor-based model depend on covariances between a few factors and their associated factor loadings c. There is no advantage to using a factor-based model of individual stock returns to model dependencies between stocks 2 . a and b Question 4 (1 point) Listen What is the covariance between two stocks with returns given by r1 = rs + Birm-)+7 r2 = r; + B2 (rm-T) + Ez O B1 B204 O (B? + B2)o +oa + oa O Ba204 + (8 + B2 ou +0+02 OB. 820 + (8 + ) ou Question 5 (1 point) Listen Does the stock market index actually follow a normal distribution? No, it tends to follow a distribution that takes on more extreme values as compared to the normal distribution Yes it does No, it tends to follow a distribution that is much more skewed than the normal distribution Question 6 (1 point) Listen Mean: You decide to put 30% of your money in Stock A and 70% in Stock B) Stocks A and B have returns r A and rb that follow the joint normal distribution below fal-n (10:201 C:20 0.201) N Your portfolio's return can be written as Tp = 0.31A + 0.77B What is the mean of your portfolio? O 0.13 0.15 0.30 0.17