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QUESTION: 171

The state of the art in the twenty-first century involves incorporating one or all of the following elements into the discount rate to refilect risk EXCEPT:

A basic equity risk premium over the risk –free rate selected as the base
One or more coefficients modifying the basic equity risk premium based on industry or other characteristics that are expected to affect the degree of risk for the subject investment
An element refilecting the size effect
None of these

Answer(s): D

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QUESTION: 172

The capital asset pricing model is part of a larger body of economic theory known as capital market theory. Capital market theory also includes:

Security analysis
Portfolio management theory
A normative theory
Systematic theory

Answer(s): A,B,C

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QUESTION: 173

___________ is the uncertainty of future returns resulting from the sensitivity of the return on the subject investment to movements in the return on the investment market as a whole.

Unsystematic risk
Systematic risk
Equity-risk premium
Investment-specific risk

Answer(s): B

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QUESTION: 174

The fundamental of CAPM is:

That the risk premium portion of the expected return on a security is a function of that security’s systematic risk.
That the risk premium portion of the expected return on a security is a function of that security’s unsystematic risk.
That the risk discount portion of the expected return on a security is a function of that security’s systematic risk.
That the risk discount portion of the expected return on a security is a function of that security’s unsystematic risk.

Answer(s): A

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