Latihan Soal Individual – Chapter 10- APT (MULTIPLE CHOICE)
1. Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of 16%. Portfolio
B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted
to take advantage of an arbitrage opportunity, you should take a short position in portfolio
__________ and a long position in portfolio _______.
a. A, B
b. B, A
c. A, B
d. B,B
2. Assume that both X and Y are well-diversified portfolios and the risk free rate is 8%
Portfolio Expected Return Beta
X 16% 1
Y 12% 0.25
In the situation you would conclude that portfolios X and Y :
a. Are in Equilibrium
b. Offer an Arbitrage opportunity
c. Are both underpriced
d. Are both fairly priced
3. A Zero Investment portfolio with a positive alpha could arise if :
a. The expected return of the portfolio equals zero.
b. The Capital Market Line is tangent to opportunity set.
c. The Law of One Price remains unviolated
d. A risk-free arbitrage opportunity exists.
4. According to the theory of arbitrage:
a. High-beta stock are consistently overpriced
b. Low-beta stocks are consistently overpriced
c. Positive alpha investment opportunities will quickly disappear.
d. Rational investors will pursue arbitrage consistent with their risk tolerance.
5. The Arbitrage Pricing Theory (APT) differs from single-factor capital asset pricing model (CAPM)
because the APT :
a. Places more emphasis on market risk
b. Minimize the importance of diversification
c. Recognize multiple unsystematic risk factors
d. Recognize multiple systematic risk factors.
6. An investor takes as large a position as possible when an equilibrium price relationship is violated.
This is an example of :
a. A dominance argument
b. The Mean- variance efficient frontier
c. Arbitrage activity
d. The Capital Asset Pricing Model
7. The feature of arbitrage pricing theory (APT) that offers the greatest potential advantage over the
simple CAPM is the :
a. Identification of anticipated changes in production, inflation, and term structure of interest
rates as key factors explaining the risk-return relationship.
b. Superior measurement of the risk-free rate of return over historical time periods.
c. Variability of coefficient of sensitivity to the APT factors for a given asset over time.
d. Use of several factors instead of a single market index to explain the risk-return
relationship.
8. In contrast to the Capital Asset Pricing Model, Arbitrage Pricing Theory :
a. Requires that markets be in equilibrium
b. Uses risk premiums based on micro variables
c. Specifies the number and identifies specific factors that determine expected returns.
d. Does not require the restrictive assumptions concerning the market portfolio.
9. An arbitrage opportunity exists if an investor can construct a __________ investment portfolio
that will yield a sure profit.
a. small positive
b. small negative
c. zero
d. large positive
10. Which pricing model provides no guidance concerning the determination of the risk premium on
factor portfolios?
a. The CAPM
b. The multifactor APT
c. Both the CAPM and the multifactor APT
d. No pricing model currently exists that provides guidance concerning the determination of
the risk premium on any portfolio.
11. In a multi-factor APT model, the coefficients on the macro factors are often called ______.
a. firm-specific risk
b. idiosyncratic risk
c. factor betas
d. unique risk
12.Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 on factor 1
and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and factor 2 portfolios are 1% and
7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is
__________ if no arbitrage opportunities exist.
a.13.5%
b.15.0%
C. 16.5%
D. 23.0%
13. Consider the multifactor APT with two factors. The risk premiums on the factor 1 and factor 2
portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1, and a beta of 0.7 on
factor 2. The expected return on stock A is 17%. If no arbitrage opportunities exist, the risk-free rate
of return is ___________.
a. 6.0%
b. 6.5%
c. 6.8%
14. The feature of the APT that offers the greatest potential advantage over the CAPM is the
______________.
a. use of several factors instead of a single market index to explain the risk-return relationship
b. identification of anticipated changes in production, inflation, and term structure as key
factors in explaining the risk-return relationship
c. superior measurement of the risk-free rate of return over historical time periods
d. variability of coefficients of sensitivity to the APT factors for a given asset over time
15. The following factors might affect stock returns:
a. the business cycle.
b. interest rate fluctuations.
c. inflation rates.
d. the business cycle, interest rate fluctuations, and inflation rates.
