1. The risk free rate is 5%. The expected return of the market portfolio is 10% and the volatility of the market portfolios return is 12%. The volatility of IBM stock return is 16%. According to the Capital Asset Pricing Model, the expected return of IBM is______.

		8%
		Not enough information is provided.
		10%
		11.67%

2.

Size anomaly (the fact that one can make positive alphas by buying small stocks and shorting large stocks) is evidence against

		fundamental analysis.
		technical analysis.
		the semi strong-form efficient market hypothesis.
		active portfolio management.

3.

Security X has an expected rate of return of 13% and a beta of 0.7. The risk-free rate is 4%, and the market expected rate of return is 18%. According to the capital asset pricing model, security X is _________.

		fairly priced
		underpriced
		overpriced
		none of these answers

4.

You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 20% and 80%, respectively. X has an expected rate of return of 16%, and Y has an expected rate of return of 11%. To form a complete portfolio with an expected rate of return of 12%, you should invest __________ in the risky portfolio P.

		$1000
		$1143
		-$200
		$875

5.

Consider the CAPM. The risk free rate is 2%. The market portfolio has an expected return of 10%. Stock Z has a beta which is less than 0. The expected return of stock Z should be __________.

		Greater than 10%
		Not enough information is provided
		greater than 2% but less than 10%
		less than 2%