1. If a stock generates high CAPM alpha, it is:
A. underpriced in the CAPM world
B. overpriced in the CAPM world
C. fairly priced in the CAPM world
D. unrelated to whether a stock is mispriced in the CAPM world
2. What theories/models may justify that small and value stocks are underpriced?
A. CAPM
B. Fama French 3 factor
C. No theories can justify this
3. What theories/models may justify that small and value stocks are fairly priced? (choose the best answer)
A. CAPM
B. APT
C. Fama French 3 factor
D. APT or Fama French 3 factor E. No theories can justify this
4. Read Chapter 8.1 and 8.3 in the textbook and then answer the following question: DFA’s business practices of trying to avoid the lemons problem while not doing any fundamental analysis suggest that they believe ___ form of market efficiency but worried that ___ form of market efficiency might fail.
A. Strong; Semi-strong
B. Semi-strong; Strong