The main ideas of Keynesian economics are: a-the importance of the long run over the short run, and an emphasis on a vertical SRAS curve. b-the importance of the long run over the short run, and an equal emphasis on the AD curve and the SRAS curve. c-the importance of the short run over the long run, and an emphasis on the AD curve and a rising SRAS curve. d-the importance of the free market with no govemment intervention, and an emphasis on monetary policy in the long run.

What is the efficient market hypothesis? Briefly explain Fama’s (1970) three forms of the efficient market hypothesis, and their implications

An investor takes as large a position as possible when an equilibrium pricerelationship is violated. This is an example of:A. A dominance argument.B. The mean-variance efficient frontier.C. Arbitrage activity.D. The capital asset pricing model.

Which of the following is correct with regards to Theories of Term Structure?   When the shape of the yield curve depends on investors’ expectations about prospective prevailing interest rates, the Pure Exception Theory is being applied. When the economic outlook is improving, the yield curve inverts as it reflects no changes in inflation premium. The liquidity preference theory suggests that long-term rates are generally higher than short-term rates since investors perceive more liquidity in long-term investments. Under the Market segmentation theory, there is an apparent relationship between the yield curve and the prevailing rate of returns in each market segment.

Explain what is meant by beta. What risk does beta measure? What is the market return? How is the interpretation of beta related to the market return?

Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)? Investors behave in accordance with Markowitz mean-variance portfolio theory. Investors are rational and risk averse. Investors all invest for the same period of time. Investors have heterogeneous expectations about expected returns and return variances for all assets. There is a risk free rate at which all investors can borrow or lend any amount. Capital markets are perfectly competitive, frictionless and efficient. Question Six: Which of the following expressions best describes the slope of the security market line? The slope of the security market line is equal to the Sharpe ratio. The slope of the security market line is equal to the Treynor ratio. The slope of the security market line is equal to alpha. The slope of the security market line is equal to the market risk premium. The slope of the security market line is equal to the standard deviation of the risky…