All else being equal, if the rate of inflation increases,
it will decrease:
The real rate of return
The riskless rate of return
The nominal rate of return
The market price of risk
Using the index model, if the beta of your actively managed
portfolio is greater than 1, you should:
Increase the proportion of your portfolio invested in the
market index to improve your diversification
Decrease the proportion of your portfolio invested in the
market index to increase your alpha
Increase the proportion of your portfolio invested in the
market index to increase your alpha
Decrease the proportion of your portfolio invested in the
market index to improve your diversification
One major benefit of the index model method of building a
portfolio is:
It typically generates a portfolio with a better Sharpe
Ratio
It takes into account the investor's attitudes towards
risk
It is less computationally expensive
It explains more of the market return's variance
According to CAPM, who should buy the market portfolio?
Everyone
No one
Risk-neutral investors
Highly risk-averse investors
For APT to generate correct prices, we need:
All investors to be rational
A few wealthy investors able to find and take advantage of
arbitrages
To only use it to price portfolios, not individual assets
All investors to have the same beliefs about asset prices
In an efficient market,
All investors will earn the same return
It will be hard or impossible to earn a better risk-adjusted
return than everyone else
All relevant information is made available to the public
Active managers have a significant advantage over passive
managers