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The University of New South Wales

School of Banking and Finance

FINS 5513: Investments and Portfolio Selection

Mid-Session Sample Examination Session 1, 2013

Time Allowed: 2 Hours

Reading Time: 5 minutes

All pages of this examination must be returned

This examination contains 23 questions in 2 sections and has 35 total marks:

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20 multiple-choice questions, each question carries 1 mark, 20 total marks;

3 short-answer questions, each question carries 5 marks, 15 total marks;

Instructions:

1. Write your name and student number and sign on the top of this page.

2. Attempt all questions.

3. Mark your answer to the multiple choice questions in pencil on the generalized answer

sheet

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The β of the stock is _______.

A. 0.67

B. 0.75

C. 1.0

D. 1.33

E. 1.50

16. You invest $600 in a security with a beta of 1.2 and $400 in another security with a beta of 0.90. The beta of the resulting portfolio is

A. 1.40

B. 1.00

C. 0.36

D. 1.08

E. 0.80

17. Your opinion is that security A has an expected rate of return of 0.145. It has a beta of 1.5. The riskfree rate is 0.04 and the market expected rate of return is 0.11. According to the Capital Asset Pricing

Model, this security is

A. underpriced.

B. overpriced by 5%.

C. fairly priced.

D. cannot be determined from data provided.

E. overpriced by 2%.

18. In a factor model, the return on a stock in a particular period will be related to

A. factor risk.

B. non-factor risk.

C. standard deviation of returns.

D. both factor risk and non-factor risk.

E. There is no relationship between factor risk, risk premiums, and returns.

19. The main difference between the three forms of market efficiency is that

A. the definition of efficiency differs.

B. the definition of excess return differs.

C. the definition of prices differs.

D. the definition of information differs.

E. they were discovered by different people.

20. The Fama-French model

I) is a useful tool for benchmarking performance against a well-defined set of factors.

II) premia are determined by market irrationality.

III) premia are determined by rational risk factors.

IV) the reason for