A.

Estimating Index Model Coefficients An analyst estimates a security characteristic line using a single index model and finds the following statistics:

	Coefficient	Std. Error	P-value	Lower 95%	Upper 95%
Intercept	0.0112	0.00181	0.1108	-0.017	+0.0277
Rm - Rf	1.027	0.02734	7.661E-07	0.7581	1.559

We know from the results with 95% confidence that the stock's beta is ___________ and is ______________________.

1.12%; insignificantly different from zero

significantly greater than zero, between 0.7581 and 1.559.

between 1.12 and 1.027; significantly different from zero

1.027; between 1 and 2

B.

Estimating Index Model Coefficients An analyst estimates a security characteristic line using a single index model and finds the following statistics:

	Coefficient	Std. Error	P-value	Lower 95%	Upper 95%
Intercept	0.0104	0.0014	0.1114	-0.0163	+0.0228
Rm - Rf	1.067	0.0276	7.673E-07	0.7562	1.53

We know from the results that the estimate of the stocks alpha is ________ and we know with 95% confidence the alpha is _____________________________.

1.04%; insignificantly different from zero

1.067; between 1 and 2

1.04%; significantly different from zero.

between 1.04 and 1.067; significantly different from zero

C.

Evaluating the CAPM Which of the following statements about the CAPM are valid?

I. As a theory the CAPM is not testable

II. The practicality of the CAPM is testable

III. CAPM betas are not as useful at predicting returns as the Fama-French factors

IV. Even if the CAPM is false, markets can still be efficient

I, II, III, IV

II, III and IV only

II and III only

I, II and III only