Under the APT, the expected risk/return relationship in a market is kept in balance by arbitrageurs. A stock has a return of 17%. Under the APT, given its risk exposure, the expected return is 15%. What would an arbitrageur do in this situation? Select one: O A. Buy the stock as price is too low. Buying increases price, reducing return. B. Buy the stock as price is too low. Buying increases price, increasing return. C. Do nothing---without risk free rate cannot tell. D. Sell the stock as the price is too high. Selling reduces price, increasing return. O O Suppose your expectations regarding the stock market is as follows: State of period Probability (%) HPR (%) Boom 30 18 Normal growth 30 8 recession 40 -15 The expected HPR of this stock market is _. And the standard deviation of this market is _. Select one: A. 1.8%, 2.03% O B. 1.8%, 14.25% C. 11%, 2.03% O D. 6%, 14.25% Consider the combinations of a given risky portfolio and a risk-free asset. Which of the following is not true about the capital allocation of y into the risky portfolio and the remaining (1-y) into the risk-free asset? O Select one: A. the risk premium of the portfolio is directly proportional to y. B. the variance of the portfolio increases with a lower value of y. C. a zero-risk portfolio can be formed by setting y = 0. D. the expected return of the portfolio when y = 0 is the risk-free rate. 0 O You purchased 200 shares of Telstra common stocks at $3 per share. What is the limit of your potential loss over the year? Select one: A. No lower bound. O B. $300 O C. $600 O D. Unknown due to insufficient information. Sharpe Ratio Standard Deviation Beta Stock X 0.3 30% 0.7 Stock Y 0.4 20% 0.9 Steph currently holds a portfolio mimicking ASX 200 index (200 largest ASX listed stocks). She wants to add either X or Y to her portfolio and prefers the less risky out of the two. Help Steph choose, given her current portfolio, investment preferences and information on stocks X and Y reported in the table: Select one: O A. Steph should add Security X to her portfolio because it has a lower Beta O B. Steph should add Security Y to her portfolio because it has a higher Sharpe ratio C. Steph should add Security Y to her portfolio because it has a lower standard deviation O D. Steph should not invest in either of the two securities because she does not have information on the risk-free rate Assume that you purchased shares of High Flying mutual fund at a share price of $12.50 per share. During the year you received dividend income distributions of $0.78 per share. At the end of the year the shares had a share price $13.87 per share. What was your rate of return on this investment? Select one: O A. 10.96%. O B. 17.50%. O C. 17.20%. O D. 4.72%. Money market does NOT include the instrument below: Select one: A. LIBOR B. Repurchase agreements C. Treasury notes D. Commercial paper