Asset Pricing
Consider a portfolio of one risky and one risk-free asset. Short-selling is not possible. Which of the following statements is correct?
Increasing the portfolio weight of the risk-free asset can increase the portfolio return volatility.
Increasing the portfolio weight of the risk-free asset increases diversification benefits.
The relationship between the portfolio weight of the risk-free asset and the portfolio risk is linear.
None of the other statements is correct.
Consider a portfolio of two risky assets, A and B. Asset A is the riskier asset and has the higher expected return. Which of the following statements is correct?
Increasing the portfolio weight of asset A can decrease the risk of the portfolio.
Increasing the portfolio weight of asset B increases the expected return of the portfolio
Standard mean-variance investors prefer asset A
None of the other statements is correct
Consider two assets A and B, which are uncorrelated with return variances 0.1 and 0.05.The weight of asset A is 0.3. Calculate the portfolio return variance. Which of the following statements is correct?
0.0335
0.0435
0.0535
None of the other statements is correct
Investors in the mu-sigma diagram normally like the following direction: Which the following statements is correct?
Top left
Top right
Bottom left
None of the other statements is correct
The following correlation coeffcient offers the best diversification benefits: Which of the following statements is correct?
0
-1
1
None of the other statements is correct
Consider an economy with two states of the world. Which of the following statements is correct?
The sum of the risk-neutral probabilities can be lower than the sum of the physical (objective) probabilities
. The sum of the risk-neutral probabilities can be higher than the sum of the physical (objective) probabilities
The physical and the risk-neutral probabilities are not connected to each other
None of the other statements is correct.
Consider an economy with two states of the world. The Arrow-Debreu security prices are 0.5 and x. Which of the following statements is correct?
When x increases, the risk-neutral probability pi*star*1 decreases
When x decreases, the risk-free rate decreases
When x increases, the price of a zero-coupon bond decreases
None of the other statements is correct
Consider an economy with three states. The Arrow Debreu prices are: 0.3 , 0.2 and 0.35. Determine the risk-neutral probabilities for the first state.
0.333
0.353
0.375
None of the other statements is correct
Consider an economy with two states of the world. There are two assets with payout structure Xa=(4,2)T and Xb=(1,0)T. The prices are for A 2.4 and for B 0.4. Calculate the price of a call option with strike price K=3 on asset A. Which of the following statements is correct?
0.8
1.4
0.4
None of the other statements is correct
Consider an economy with two states of the world and two securities Xa=(4, 0.5)T and Xb=(8,z)T. Which of the following statements is correct?
For z=1 the market is not complete
For z=1.5 the market is not complete
For z=2 the market is not complete
None of the other statements is correct
The slope of the capital market line is c=0.5. The tangency portfolio has expected return 8% and volatility 5%. Calculate the risk-free rate. Which of the following statements is correct?
3%
4.5%
5.5%
None of the other statements is correct
Which of the following statements is correct?
When a preference indifference curve crosses the capital market line twice, the agent prefers the allocation in the crossing point with the higher expected return.
When the preference indifference curve crosses the capital market line, we can find feasible allocations to achieve the corresponding preference level.
A more risk-averse agent chooses a higher point on the capital market line than a less risk-averse agents.
None of the other statements is correct.
The expected returns of the risky assets are u (5%, 7%, 9%). The portfolio weights of the risky assets for investor A is (0.8, 0.8, 0.4)T. Calculate the expected return of the tangency portfolio. Which of the following statements is correct?
6.6%
7%
7.4%
None of the other statements is correct.
The optimal portfolio allocation of investor A in three risky assets is (0.4, 0.2, 0.3)T. Calculate the portfolio weight of the risk-free asset. Which of the following statements is correct?
0.1
0.2
0.3
None of the other statements is correct.
Which of the following statements is correct?
According to the Two-Fund Separation Theorem investors invest part of their investment in the tangency portfolio and the other part in the market portfolio.
In equilibrium there are more assets in the market portfolio than in the tangency portfolio.
Investors prefer the market portfolio over the tangency portfolio in equilibrium.
None of the other statements is correct.
Consider a portfolio which invests 60% in the market portfolio and 40% in the risk-free asset. Which of the following statements is correct?
It has a beta of 1
It has a beta of 0.4
It has a beta of 0.6
None of the other statements is correct.
Which of the following statements is correct?
Portfolios with a higher beta PF have a higher expected return.
Portfolios with a higher expected return also have a higher realized return
When the expected return of the market portfolio is unchanged, an increase in the risk-free rate leads to an increase in the slope of the security market line
None of the other statements is correct.
Which of the following statements is correct?
Only the market portfolio has a beta of 1
The value of the risk-free asset is greater than zero
The value of the market portfolio is zero
None of the other statements is correct
The risk-free rate is 3%. The slope of the security market line is 1%. Calculate the expected return of the market portfolio. Which of the following statements is correct?
2%
4%
6%
None of the other statements is correct
Consider a CAP M in which only the following change is made. Determine the impact on the price of risky asset A: Which of the following statements is correct?
An increase in the risk-aversion of the agents in the economy leads to a decrease in the price of the asset A
An increase in the risk-free rate leads to an increase in the price of the asset A
An increase in the supply of an asset leads to a decrease in the price of the asset A
None of the other statements is correct
Consider a CAPM with heterogeneous beliefs. Which of the following statements is correct?
When two agents have the same risk-aversion, the agent with the higher wealth has a lower impact on the aggregated market beliefs
When two agents have the same wealth, both agents have the same impact on the aggregated market beliefs
When an agent enters the market, who is an exact duplicate of one of the other agents in the market, the aggregated expectations in the market increase
None of the other statements is correct
Consider two economies with homogeneous agents. The economies are identical, only the expectation of all risky asset returns are 1% lower in economy B. The risk-free rate is the same in both economies. Which the following statements is correct?
The portfolio weights of the minimum variance portfolio (of only the risky assets) are the same in both economies
The portfolio weights of the tangency- portfolio are the same in both economies
The slope of the capital market line is the same in both economies
None of the other statements is correct
Consider a CAPM with heterogeneous beliefs. Which of the following statements is correct?
All agents hold the same portfolio composition of risky assets
All agents hold the same amount invested in the risk-free asset
All agents hold the same amount of the risky assets
None of the other statements is correct
Consider a CAPM with heterogeneous beliefs. Which of the following statements is correct?
The volatility of the minimum variance portfolio (of only risky assets) can be different for agents with different expected returns
The expected return of the minimum variance portfolio (of only risky assets) can be different for agents with different expected returns
. The portfolio weights of the minimum variance portfolio (of only risky assets) can be different for agents with different expected returns
None of the other statements is correct
Consider a CAPM with heterogeneous beliefs. Which of the following statements is correct?
Two agents with the same beliefs can have different tangency portfolios
Two agents with the same beliefs can have different market portfolios
Two agents with the same risk-aversion can have different tangency portfolios
None of the other statements is correct
Consider an economy with utility function In(x). Which of the following statements is correct?
When the repayment covaries negatively with the marginal utility out of consumption, the price is below the expected repayment divided by 1 + r f
When consumption at time t + 1 is certain, the personal discount factor beta is the same as the stochastic discount factor m
When the repayment of an asset covaries negatively with consumption, the price of the asset is below the expected repayment divided by 1 + r f
None of the other statements is correct
Consider an economy with utility function In(x). Assume all other variables are equal. Which of the following statements is correct?
The risk-free rate is higher when the risk of the investment is lower
The risk-free rate is higher when the personal discount factor is higher
The risk-free rate is higher when the consumption growth is lower
None of the other statements is correct
Which of the following statements is correct?
The stochastic discount factor is irrelevant for consumption decisions by agents
A higher personal discount factor beta indicates that people want to consume more at time t
When the personal discount factor beta=0.5, agents consume half of their wealth today
None of the other statements is correct
Consider an agent with the utility function u(x)= 1 โ exp(โ2x). The personal discount factor is 0.8. Calculate the stochastic discount factor m. Which of the following statements is correct?
Mt+1=0.8*exp(-2(C(t+1) - Ct))
Mt+1=-0.8*2*exp(-2(C(t+1) - Ct))
Mt+1=0.8*2*exp(-2(C(t+1) - Ct))
None of the other statements is correct
Consider an economy with risk-free rate 20% and two states of the world, A and B. The states are equally likely. The stochastic discount factor mA=1. Calculate the stochastic discount factor for the other state, mB. Which of the following statements is correct?
2/3
3/2
1
None of the other statements is correct
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