13.The SML graphically portrays the expected return-beta relationship. Accordingly, at a beta equal to one, an investor can read off the vertical axis on the chart for the expected return on the market portfolio. Fairly priced assets plot exactly on the SML.

True

False

14.A common version of the expectations hypothesis holds that forward interest rates are complete and unbiased estimates of expected future interest rates. However, there are good reasons to believe that forward rates differ from expected short rates because of, for example, a risk premium known as a liquidity premium (from the liquidity preference theory).

True

False

15.As a technical-based sentiment indicator, a rising put/call ratio (i.e., a ratio above one and increasing) portends increasing optimism with investors; however, an investor with a contrarian philosophy/style may view it as a selling opportunity.

True

False

16.The CAPM market portfolio is a value-weighted portfolio. Each asset is held in a proportion that is equal to its market value divided by the total market value of all assets. In essence, the CAPM implies that the risk premium on any individual asset (or portfolio) is the product of the risk premium on the market portfolio and the beta coefficient.

True

False