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Quiz #6 M5 Answers

The document contains a quiz for the HEC MBA Class of January 2025 focusing on financial markets and investments. It includes questions about the Capital Asset Pricing Model (CAPM) and Jensen's alpha in relation to investment strategies. The quiz assesses understanding of concepts such as cost of capital, market value, and passive investment strategies.

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8 views2 pages

Quiz #6 M5 Answers

The document contains a quiz for the HEC MBA Class of January 2025 focusing on financial markets and investments. It includes questions about the Capital Asset Pricing Model (CAPM) and Jensen's alpha in relation to investment strategies. The quiz assesses understanding of concepts such as cost of capital, market value, and passive investment strategies.

Uploaded by

8x57hjf7yf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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HEC MBA Class of January 2025

Financial Markets and Investments Quiz #6

Name:

Question #1: You are thinking of acquiring a private company with beta equal
to 0.5. Which of the following statement is correct?

 CAPM is likely to under-estimate both the cost of capital and the market
value of the company

 CAPM is likely to over-estimate both the cost of capital and the market
value of the company

X CAPM is likely to under-estimate the cost of capital and over-estimate the


market value of the company

 CAPM is likely to over-estimate the cost of capital and under-estimate the


market value of the company

Question #2: Suppose that the hedge fund “Rainbow Investment” has a positive (after fees)
Jensen’s alpha. This means that:

 Rainbow Investment has a higher expected return than a passive investment strategy
with the same standard deviation of returns

 Rainbow Investment has a lower expected return than a passive investment strategy
with the same standard deviation of returns

X Rainbow Investment has a higher expected return than a passive investment strategy
with the same beta

 Rainbow Investment has a lower expected return than a passive investment strategy
with the same beta

Don’t forget to write your name on the copy 😊


Question #2: Which of the following investment strategies is a passive
investment strategy?

 The equally weighted market portfolio (wi = 1/n)

X The value-weighted market portfolio

 Any portfolio on the Efficient Frontier

 A portfolio where the weight of each asset is inversely proportional to its


standard deviation of returns

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