Chapter08TestBank-StaticStudent:___________________________________________________________________________MultipleChoiceQuestions1.Asdiversificationincreases,thetotalvarianceofaportfolioapproachesA.0.B.1.C.thevarianceofthemarketportfolio.D.infinity.E.Noneoftheoptionsarecorrect.2.Asdiversificationincreases,thestandarddeviationofaportfolioapproachesA.0.B.1.C.infinity.D.thestandarddeviationofthemarketportfolio.E.Noneoftheoptionsarecorrect.3.Asdiversificationincreases,thefirm-specificriskofaportfolioapproachesA.0.B.1.C.infinity.D.(n–1)×n.4.Asdiversificationincreases,theunsystematicriskofaportfolioapproachesA.1.B.0.C.infinity.D.(n–1)×n.5.Asdiversificationincreases,theuniqueriskofaportfolioapproachesA.1.B.0.C.infinity.D.(n–1)×n.6.TheindexmodelwasfirstsuggestedbyA.Graham.B.Markowitz.C.Miller.D.Sharpe.7.Asingle-indexmodeluses__________asaproxyforthesystematicriskfactor.A.amarketindex,suchastheS&P500B.thecurrentaccountdeficitC.thegrowthrateinGNPD.theunemploymentrate.8.Betabookstypicallyrelyonthe__________mostrecentmonthlyobservationstocalculateregressionparameters.A.12B.36C.60D.1209.TheindexmodelhasbeenestimatedforstocksAandBwiththefollowingresults:RA=0.03+0.7RM+eA.RB=0.01+0.9RM+eB.σM=0.35;σ(eA)=0.20;σ(eB)=0.10.ThecovariancebetweenthereturnsonstocksAandBisA.0.0384.B.0.0406.C.0.1920.D.0.0772.E.0.4000.10.Accordingtotheindexmodel,covariancesamongsecuritypairsareA.duetotheinfluenceofasinglecommonfactorrepresentedbythemarketindexreturn.B.extremelydifficulttocalculate.C.relatedtoindustry-specificevents.D.usuallypositive.E.duetotheinfluenceofasinglecommonfactorrepresentedbythemarketindexreturnandusuallypositive.11.TheinterceptintheregressionequationscalculatedbybetabooksisequaltoA.αintheCAPM.B.α+rf(1+β).C.α+rf(1–β).D.1–α.12.Analystsmayuseregressionanalysistoestimatetheindexmodelforastock.Whendoingso,theslopeoftheregressionlineisanestimateofA.theαoftheasset.B.theβoftheasset.C.theσoftheasset.D.theδoftheasset.13.Analystsmayuseregressionanalysistoestimatetheind...
