1. Which of the following is best defined as returns above what is anticipated according to CAPM?

   1. Excess Return

   2. Alpha

   3. Beta

   4. Sharpe Ratio

2. In CAPM, which of the following prices the systematic risk of a stock as if it were to be added to an existing well-diversified portfolio?

   1. Excess Return

   2. Alpha

   3. Beta

   4. Sharpe Ratio

3. During a crisis, or overall economic shock, what often happens to correlations between asset returns?

   1. Correlations typically do not change in magnitude

   2. Correlations become larger in magnitude and negative

   3. Correlations become larger in magnitude and positive

   4. Correlations move to zero across assets

4. Which of the following drives stock returns to follow a random walk?

   1. Irrational behavior

   2. Varying valuation models

   3. Momentum

   4. New developments

5. Which of the following should NOT be considered as a limitation to arbitrage when there are market inefficiencies from irrational behavior?

   1. Markets may remain irrational for too long

   2. Behavioral biases reflected in investor behavior

   3. Transactions costs may interfere

   4. Model of intrinsic value may be incorrect