Question 1

. The APT does not require a market portfolio

Accepted Answer

true

Answer

false

Question 2

Neither firm size nor the time interval used is important when computing beta.

Accepted Answer

false

Answer

true

Question 3

The APT assumes that security returns are normally distributed.

Accepted Answer

false

Answer

true

Question 4

In the APT model, the identity of all the factors is known.

Accepted Answer

true

Answer

false

Question 5

The January Effect is anomaly in that returns in January are significantly smaller than in any other month.

Accepted Answer

false

Answer

true

Question 6

Consider the following two factor APT model (click picture):

Accepted Answer

$\lambda1$ is the risk premium

Answer

$\lambda1$ is the pricingrelationship between the risk premium and the asset.

Answer

$\lambda1$ is the expected return on the asset with zero systematic risk

Answer

$\lambda1$ is the expected return on asset 1.

Question 7

In the APT model the idea of riskless arbitrage is to assemble a portfolio that

Accepted Answer

requires no initial wealth, will bear no risk, and still earn a profit.

Answer

requires no initial wealth, will bear no unsystematic risk, and still earn a profit.

Answer

none of the above

Answer

requires no initial wealth, will bear no systematic risk, and still earn a profit.

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