solution
solution.
Considering CAPM when firm-specific risk is neglected, which of the following does not make sense with respect to the beta of a company’s stock? (whether these companies are actually publicly traded is not the issue here, assume they all are)
a Bank of Montreal has a beta of 1
b Hydro Quebec has a beta between 0 and 1
c Bugatti Automobile has a beta larger than 1
d A Michelin starred restaurant holding company has a negative beta
Which one of the followings is an arbitrage?
a. Invest $100,000 in ankless asset that pays 3% per annual
b Borrow $10,000 from a riskless asset with an annual nsk free rate of 5% and invest $10,000 in a market index with an expected return of 15%
? Short St in a portfolio with a 5% expected return and a 0.5 beta and long $1 in a portfolio with a 7% expected return and a 0.5 beta
d Short a portfolio with a 10% expected return and a 1 beta and use all the proceeds to invest in a portfolio with a 6% expected return and a 1 beta
Which of the followings is a false statement regarding diversification?
a The firm-specific risks of individual assets approach zero within a well-diversified portfolio
b The non-systematic risk of a well-diversified portfolio approached zero
C The firm specific risk can never truly reach zero no matter how diversified a portfolio is.
d Diversification is one of the assumptions for APT
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