37. The difference between the fair and actually expected rates of return on a stock is called the stocks alpha. Alphas can be positive, zero, or negative.

True

False

38. The equity risk premium puzzle originates from the observation that equity returns marginally exceed the risk-free rate to an extent that is consistent with low levels of risk aversion (on average). Over time, given the longer-term returns on equities relative to risk free assets, the equity risk premium has proven to be surprisingly low.

True

False

39.The APT (Ross) multifactor model uses a Morningstar-type construct while FF (French-Fama) uses one that is more macroeconomic. For example, APT uses a small minus big factor (capitalization) and a high minus low price-to-book factor while FF uses the growth rate in industrial production and unexpected inflation expectations, among others.

True

False

40. The CAPM has the assumptions that investors are rational, mean-variance optimizers, that investors use identical inputs lists (i.e., homogeneous expectations), and that all assets are publically traded.

True

False