1) The beta of a financial asset is equal to__________.

A. the covariance between the security and marketreturns divided by the variance of the market'sreturns

B. one, if the standard deviation of returns matches themarket standard deviation

C. both (A) and (B) are true

D. none of the above

2) According to the CAPM, the risk premium an investorexpects to receive on any stock or portfolio is________________.

A. directly related to the risk aversion of theparticular investor

B. inversely related to the risk aversion of theparticular investor

C. directly related to the beta of thestock

D. inversely related to the alpha of thestock

3) In the context of the capital asset pricing model,the systematic measure of risk is __________.

A. unique risk

B. beta

C. standard deviation of returns

D. variance of returns

4) An underpriced stock provides an expected returnwhich is _______________ the required return based on the capitalasset pricing model (CAPM).

A. less than

B. equal to

C. greater than

D. greater than or equal to

5) Take a look at the regression outputbelow:

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	0.016976	0.00812	2.090513	0.040549	0.000753	0.033199
X Variable 1	0.893179	0.215104	4.152322	9.93E-05	0.463461	1.322898

A. beta is approximately 1.7

B. the 95% confidence range for beta includes a betathat matches the market

C. both (A) and (B) are true

D. none of the above

6) Take a look at the regression outputbelow:

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	0.016976	0.00812	2.090513	0.040549	0.000753	0.033199
X Variable 1	0.432694	0.215104	4.152322	9.93E-05	0.113765	0.732376

A. beta is approximately 0.43

B. the 95% confidence range for beta includes a betathat matches the market

C. both (A) and (B) are true

D. none of the above

7) The CAPM equation for expected return on aninvestment:

A. contains a risk-free component and a riskpremium

B. includes measures of systematic risk andidiosyncratic risk

C. only uses betas between -1 and 1

D. restricts expected return on investment to be betweenthe risk-free rate and the market return.