Question 1

Calculate the stock's total return if the company announces that an important patent filing has been granted sooner than expected and will earn the company 5% more in return.
A)7.95%
B)9.95%
C)11.55%
D)7.90%
E)9.35%

Accepted Answer

To calculate the total return, we need to add the percentage change in the stock price and the percentage from dividends or other sources. Since there is no information about dividends or other sources, we assume the 5% increase in return is referring to the stock price.

The formula to calculate the total return is: 
Total return = Percentage change in stock price + Percentage from dividends or other sources

If the stock increases by 5%, the new price will be $52.50 (50 x 1.05).

Percentage change in stock price = (New price - Old price) / Old price x 100%
Percentage change in stock price = (52.50 - 50) / 50 x 100%
Percentage change in stock price = 5%

Therefore, the total return is 5% (from the increase in stock price) + 4.95% (the original return of 6% from the question) = 9.95%.

The best choice is B because this is the only option that matches the correct calculation.

Question 2

Explain the conceptual differences in the theoretical development of the CAPM and APT.

Accepted Answer

The answer of Explain the conceptual differences in the theoretical...

Question 3

An investor is considering the three stocks given below:
$\begin{array}{llcc}
 \underline{ \text { Stock }} &   \underline{\text {  Expected} } &\underline{ \text {  Beta}}  \
 &\underline{\text {  Return}} &&\
 \text {A  } &6.0\%&-0.10\
 \text { B } &13.3\%&2.10\
 \text {  C} &9.2\%&.75\
 \text { Market Portfolio } &10.0\%&1.00\
 \text { T-Bills } &7.0\%&0.00\
\end{array}$

Calculate the expected return and beta of a portfolio equally weighted between stocks B and C.Demonstrate that holding stock A actually reduces risk by comparing the risk of a portfolio equally weighted between stock B and T-Bills with a portfolio equally weighted between stocks B and A.

Accepted Answer

The answer of An investor is considering the three stocks...

Question 4

Calculate the stock's total return if the company announces that they had an industrial accident and the operating facilities will close down for some time thus resulting in a loss by the company of 7% in return.
A)-4.05%
B)-2.05%
C)4.55%
D)0.40%
E)1.85%

Accepted Answer

To calculate the total return, we need to subtract the loss percentage (7%) from the return. 
So, the total return will be:
100% - 7% = 93%
Therefore, the stock's total return will be a decrease of 2.05% (100% - 93%). Option B is the correct answer.

Question 5

You have a 3 factor model to explain returns.Explain what a factor represents in the context of the APT? Each factor is multiplied by a beta.What do these represent and how do they relate to the actual return?

Accepted Answer

The answer of You have a 3 factor model to...

Question 6

Discuss the Fama-French three factor model; both what it means and the factors of the model.

Accepted Answer

The answer of Discuss the Fama-French three factor model; both...

Question 7

What would the stock's total return be if the actual growth in each of the factors was equal to growth expected? Assume no unexpected news on the patent.
A)4%
B)5%
C)6%
D)7%
E)8%

Accepted Answer

The answer of What would the stock's total return be...

Quiz 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Calculate the stock's total return if the company announces that an important patent filing has been granted sooner than expected and will earn the company 5% more in return.

Explain the conceptual differences in the theoretical development of the CAPM and APT.

Calculate the stock's total return if the company announces that they had an industrial accident and the operating facilities will close down for some time thus resulting in a loss by the company of 7% in return.

You have a 3 factor model to explain returns.Explain what a factor represents in the context of the APT? Each factor is multiplied by a beta.What do these represent and how do they relate to the actual return?

Discuss the Fama-French three factor model; both what it means and the factors of the model.

What would the stock's total return be if the actual growth in each of the factors was equal to growth expected? Assume no unexpected news on the patent.