1. portfolios alpha (difference between actual expected return and CAPM fair return) can be improved by_______

a.Adding assets with higher betas.

b.Adding assets with higher risk premiums.

c.Adding assets that are underpriced based on CAPM.

d. None of the other choices.

2.

Based on the following information for Stock A and Stock B, which stock will you choose to add to a market index portfolio based CAPM? Assume the risk-free rate is 5% and the market risk premium is 10%.

Stocks	E(r)	Standard Deviation	Beta
A	16%	20%	1.3
B	10%	25%	0.6

a.Stock A

b.Stock B

c.Both Stock A and Stock B

d.Neither Stock A or Stock B.

3.

HighFly Limited has recently launched a new line of product which provides a good prospect for the companys future growth. Liam plans to invest a total amount of $50,000 in companys shares at the market price of $25. Liam wants to borrow as much as she can from the broker to make this investment. The Initial margin requirement is 50%. The interest rate for borrowing is 8% p.a. What will happen if the share price drops to $22 at the end of the year and the maintenance margin requirement is 35%?

a.Liam will be asked by the broker to deposit more cash to restore the margin ratio back to 50%.

b.The remaining margin ratio is still above MMR so there will be no margin mall from the broker.

c.Liam will be asked by the broker to deposit more cash to restore the margin ratio back to 30%.

d.The broker will close Liams account as the remaining margin is too low.