FINANCE 320 EXAM 1 UMIAMI EXAM
QUESTIONS & ANSWERS RATED
100% CORRECT
CAPM (Capital Asset Pricing Model) - Correct Answer ✔✔ helps to calculate investment
risk and what return on investment an investor should expect
CAPM Equation - Correct Answer ✔✔ Expected Return of a stock (Ers)= Risk-Free
Rate (rf)+Beta*(Expected Return for the market(erm) - risk-free rate of return(rf)) (this
part is the market risk premium)
CAPM Road trip analogy - Correct Answer ✔✔ How far you will go = constant highway
speed (flat highway) + vehicles speed x road conditions (help or hurt)
Efficient Market Hypothesis - Correct Answer ✔✔ Prices of securities fully reflect
available information, and shouldn't be arbitrage opportunities, stocks should move in a
random walking trend.
Technical Analysis - Correct Answer ✔✔ Research to identify mispriced securities,
focusing on recurrent and predictable stock movements
When theres mispriced securities and recurrent preditable stock movements, what is
this an indication of? - Correct Answer ✔✔ indication of inefficient market
Fundamental analysis - Correct Answer ✔✔ research on determinants of stock value,
such as earnings and dividend prospects, expectations for future interest rates, and risk
of the firm
Role of Investment Management in EMT - Correct Answer ✔✔ Diversification, Tax
consideration, and the risk profile of the investor.
The fact that actively managed funds don't outperform the market is evidence of what? -
Correct Answer ✔✔ markets are relatively efficient
When some sectors have high BETA but have consistently lower returns, what is this
evidence of? - Correct Answer ✔✔ Efficient Market Hypothesis/theory
What is BETA? - Correct Answer ✔✔ Beta is a measure of the volatility of an
investment compared with the market as a whole.
There is Inefficient Market Results when... - Correct Answer ✔✔ there is systematic
resource misallocation (Communist China)
QUESTIONS & ANSWERS RATED
100% CORRECT
CAPM (Capital Asset Pricing Model) - Correct Answer ✔✔ helps to calculate investment
risk and what return on investment an investor should expect
CAPM Equation - Correct Answer ✔✔ Expected Return of a stock (Ers)= Risk-Free
Rate (rf)+Beta*(Expected Return for the market(erm) - risk-free rate of return(rf)) (this
part is the market risk premium)
CAPM Road trip analogy - Correct Answer ✔✔ How far you will go = constant highway
speed (flat highway) + vehicles speed x road conditions (help or hurt)
Efficient Market Hypothesis - Correct Answer ✔✔ Prices of securities fully reflect
available information, and shouldn't be arbitrage opportunities, stocks should move in a
random walking trend.
Technical Analysis - Correct Answer ✔✔ Research to identify mispriced securities,
focusing on recurrent and predictable stock movements
When theres mispriced securities and recurrent preditable stock movements, what is
this an indication of? - Correct Answer ✔✔ indication of inefficient market
Fundamental analysis - Correct Answer ✔✔ research on determinants of stock value,
such as earnings and dividend prospects, expectations for future interest rates, and risk
of the firm
Role of Investment Management in EMT - Correct Answer ✔✔ Diversification, Tax
consideration, and the risk profile of the investor.
The fact that actively managed funds don't outperform the market is evidence of what? -
Correct Answer ✔✔ markets are relatively efficient
When some sectors have high BETA but have consistently lower returns, what is this
evidence of? - Correct Answer ✔✔ Efficient Market Hypothesis/theory
What is BETA? - Correct Answer ✔✔ Beta is a measure of the volatility of an
investment compared with the market as a whole.
There is Inefficient Market Results when... - Correct Answer ✔✔ there is systematic
resource misallocation (Communist China)
