Multiple Choice Questions (60 marks) Clearly circle the best answer to each of the following questions, 1) Users of the CAPM should be aware of some of the problems in its practical application. These problems include which of the following? a) Estimating expected future market returns. b) Determining the most appropriate measure of the risk-free rate. c) Determining an asset's future beta. d) Both a. and b. e) Both a. and c. f) All of the above. 2) Which of the following is TRUE? a) T-Bills generally yield a higher return than common stocks. b) Long-term corporate bonds generally yield a higher return than common stocks, c) Bonds with higher YTM will sell at a higher market price than otherwise identical bonds with lower YTM. d) The nominal interest rate exceeds the real interest rate when inflation is greater than zero. e) None of the above 3) A portfolio lies on the security market line. It has beta of 1.5 and the risk-free rate is 2%. What is the market risk premium? a) 3.00% b) 5.00% c) 6.67% d) 8.00% e) None of the above 4) When the cost of capital (or discount rate) increases, the IRR of a project: a) increases. b) decreases. c) tends to have multiple solutions. d) cannot be determined without knowing the discount rate. e) None of the above. 5) All else equal, the efficient frontier: a) Shifts to the left as the correlation between assets decreases. b) Identifies portfolios that are risk efficient but not return efficient. c) Shifts to the left as the number of investable assets decreases. d) Is the location of a portfolio invested 100% in bonds. e) None of the above