If stock returns are normally distributed, the distribution can be completely defined by two numbers. What are they? (page 207)
What is meant by "the set of efficient portfolios?" (page 210)
If an investor can borrow and lend at the same rate of interest, should the choice of common stock portfolio depend on the investor's willingness to bear risk? Why or why not? (page 212-213)
What is the Sharpe ratio? Why should investors attempt to maximize it? (page 213)
Write down the capital asset pricing model. (page 214)
The interest rate is 3% and the expected market return is 8%. What is the expected return on a stock with a beta of 1.2? (pages 215-216)
You can create a portfolio with a beta of 1.2 by a mixture of borrowing and investing in the market portfolio. What is the expected return on this portfolio if the interest rate is 3% and the expected market return is 8%? (pages 216-217)
Two groups of stocks appear to have performed much better than the capital asset pricing model would predict. What are they? (pages 218-220)
State the formula for the arbitrage pricing theory. What are the three steps involved in estimating expected returns using this formula? (pages 223-224)
State the Fama-French three-factor model. (page 226)
