Question 1

ABC Inc. has a dividend yield equal to 5 percent and is expected to grow at a 12 percent rate for the next seven years. What is ABC's required return?

Accepted Answer

A)  17.0 percent 
B)  7.0 percent 
C)  6.7 percent 
D)  2.4 percent 
A)  17.0 percent 
B)  7.0 percent 
C)  6.7 percent 
D)  2.4 percent

Question 2

A company has a beta of 0.50. If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is the company's required return?

Accepted Answer

A)  6.0 percent 
B)  8.5 percent 
C)  11.0 percent 
D)  13.5 percent 
A)  6.0 percent 
B)  8.5 percent 
C)  11.0 percent 
D)  13.5 percent

Question 3

A stock has an expected return of 14.5 percent, the risk-free rate is 4 percent and the return on the market is 11 percent. What is this stock's beta?

Accepted Answer

A)  1.5 
B)  3.0 
C)  1.05 
D)  0.94 
A)  1.5 
B)  3.0 
C)  1.05 
D)  0.94

Question 4

IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following statements must be correct?

Accepted Answer

A)  The market risk premium for Apple must be larger than the market risk premium of IBM. 
B)  If investors become more risk averse, the expected return of Apple will increase more than the expected return on IBM. 
C)  Apple's expected rate of return must be three times as large as IBM's. 
D)  none of these choices are correct. 
A)  The market risk premium for Apple must be larger than the market risk premium of IBM. 
B)  If investors become more risk averse, the expected return of Apple will increase more than the expected return on IBM. 
C)  Apple's expected rate of return must be three times as large as IBM's. 
D)  none of these choices are correct.

Question 5

A company's current stock price is $65.40 and it is likely to pay a $2.25 dividend next year. Since analysts estimate the company will have an 11.25 percent growth rate, what is its expected return?

Accepted Answer

A)  3.44 percent 
B)  3.61 percent 
C)  11.25 percent 
D)  14.69 percent 
A)  3.44 percent 
B)  3.61 percent 
C)  11.25 percent 
D)  14.69 percent

Question 6

Which of the following is NOT a necessary condition for an efficient market?

Accepted Answer

A)  many buyers and sellers 
B)  no prohibitively high barriers to entry 
C)  free and readily available information available to all participants 
D)  no trading or transaction costs 
A)  many buyers and sellers 
B)  no prohibitively high barriers to entry 
C)  free and readily available information available to all participants 
D)  no trading or transaction costs

Question 7

The line on a graph of return and risk (standard deviation) from the risk-free rate through the market portfolio is ________.

Accepted Answer

A)  capital market line 
B)  expected return 
C)  security market line 
D)  financial leverage 
A)  capital market line 
B)  expected return 
C)  security market line 
D)  financial leverage

Question 8

You own $8,000 of City Steel stock that has a beta of 2.1. You also own $12,000 of Rent-N-Co (beta = 1.75) and $5,000 of Lincoln Corporation (beta = 0.50). What is the beta of your portfolio?

Accepted Answer

A)  1.45 
B)  1.61 
C)  2.10 
D)  4.35 
A)  1.45 
B)  1.61 
C)  2.10 
D)  4.35

Question 9

Which of the following is incorrect?

Accepted Answer

A)  Technical analysis is expected to work if markets are weak-form efficient. 
B)  If markets are strong-form efficient then they must also be weak-form efficient. 
C)  It is not likely that the market is strong-form efficient. 
D)  none of these choices are incorrect. 
A)  Technical analysis is expected to work if markets are weak-form efficient. 
B)  If markets are strong-form efficient then they must also be weak-form efficient. 
C)  It is not likely that the market is strong-form efficient. 
D)  none of these choices are incorrect.

Question 10

You own $9,000 of Olympic Steel stock that has a beta of 2.5. You also own $7,000 of Rent-a-Center (beta = 1.2) and $8,000 of Lincoln Educational (beta = 0.4). What is the beta of your portfolio?

Accepted Answer

A)  1.18 
B)  1.07 
C)  1.42 
D)  1.53 
A)  1.18 
B)  1.07 
C)  1.42 
D)  1.53

Question 11

Praxair's upcoming dividend is expected to be $2.25 and its stock is selling at $65. The firm has a beta of 0.8 and is expected to grow at 10 percent for the foreseeable future. Compute Praxair's required return using both CAPM and the constant growth model. Assume that the market portfolio will earn 10 percent and the risk-free rate is 3 percent.

Accepted Answer

A)  CAPM: 8.6 percent; Constant Growth Model: 13.46 percent 
B)  CAPM: 9.7 percent; Constant Growth Model: 12.56 percent 
C)  CAPM: 10.1 percent; Constant Growth Model: 11.46 percent 
D)  CAPM: 8.2 percent; Constant Growth Model: 9.56 percent 
A)  CAPM: 8.6 percent; Constant Growth Model: 13.46 percent 
B)  CAPM: 9.7 percent; Constant Growth Model: 12.56 percent 
C)  CAPM: 10.1 percent; Constant Growth Model: 11.46 percent 
D)  CAPM: 8.2 percent; Constant Growth Model: 9.56 percent

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Penny stocks are the stocks of small companies that are priced below $1 per share. 
B)  Restricted stocks are shares of stock issued to executives that have limitations on voting rights. 
C)  The Capital Market Line graphs the relationship between return and risk (beta). 
D)  All of these choices are correct. 
A)  Penny stocks are the stocks of small companies that are priced below $1 per share. 
B)  Restricted stocks are shares of stock issued to executives that have limitations on voting rights. 
C)  The Capital Market Line graphs the relationship between return and risk (beta). 
D)  All of these choices are correct.

Question 13

A company has a beta of 0.85. If the market return is expected to be 9 percent and the risk-free rate is 2.5 percent, what is the company's required return?

Accepted Answer

A)  7.350 percent 
B)  8.025 percent 
C)  10.150 percent 
D)  21.775 percent 
A)  7.350 percent 
B)  8.025 percent 
C)  10.150 percent 
D)  21.775 percent

Question 14

Compute the standard deviation given these four economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}
\begin{array} { c c r } 
\text { Eccrorric State }&\text { Probability } & \text { Return } \
\text { fast growth }&0.20 & 100 \% \
\text {slow growth }&0.50 & 10\% \
\text { recession }&0.20 & - 1\%\
\text { depression }&0.10 & - 10\%
\end{array}
\end{array}$$

Accepted Answer

A)  12.19 percent 
B)  23.8 percent 
C)  38.65 percent 
D)  88.06 percent 
A)  12.19 percent 
B)  23.8 percent 
C)  38.65 percent 
D)  88.06 percent

Question 15

You hold the positions in the following table. What is the beta of your portfolio?
$$\begin{array} { l r r r r } 
& \text { Price } & \text { Shares } & \text { Beta } \
\text { TechNo Comp. } & \$ 15.25 & 2000 & 4.0 \
\text { Delivery Corp. } & \$ 105.00 & 500 & 1.4 \
\text { Computer Corp. } & \$ 35.40 & 300 & 0.9 \
\text { Food Corp. } & \$  18.75 & 200 & -0.7
\end{array}$$

Accepted Answer

A)  1.4 
B)  2.08 
C)  2.13 
D)  5.6 
A)  1.4 
B)  2.08 
C)  2.13 
D)  5.6

Question 16

You own $1,000 of City Steel stock that has a beta of 1.5. You also own $5,000 of Rent-N-Co (beta = 1.8) and $4,000 of Lincoln Corporation (beta = 0.9). What is the beta of your portfolio?

Accepted Answer

A)  1.4 
B)  1.5 
C)  4.2 
D)  4.65 
A)  1.4 
B)  1.5 
C)  4.2 
D)  4.65

Question 17

Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.?

Accepted Answer

A)  audited financial statements 
B)  generally accepted accounting principles 
C)  privately held information 
D)  public information 
A)  audited financial statements 
B)  generally accepted accounting principles 
C)  privately held information 
D)  public information

Question 18

Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}
\begin{array} { c c r } 
\text { Eccrorric State }&\text { Probability } & \text { Return } \
\text { fast growth }&0.2 & 23 \% \
\text {slow growth }&0.6 & 14\% \
\text { recession }&0.2 & - 30\%\
\end{array}
\end{array}$$

Accepted Answer

A)  3.5 percent 
B)  7.0 percent 
C)  7.5 percent 
D)  12.5 percent 
A)  3.5 percent 
B)  7.0 percent 
C)  7.5 percent 
D)  12.5 percent

Question 19

You own $5,000 of Software Corp's stock that has a beta of 3.75. You also own $10,000 of Home Improvement Corp. (beta = 1.5) and $15,000 of Publishing Corp. (beta = 0.35). Assume that the market return will be 13 percent and the risk-free rate is 4.5 percent. What is the risk premium of the portfolio?

Accepted Answer

A)  11.05 percent 
B)  16.50 percent 
C)  17.00 percent 
D)  24.70 percent 
A)  11.05 percent 
B)  16.50 percent 
C)  17.00 percent 
D)  24.70 percent

Question 20

A company has a beta of 3.75. If the market return is expected to be 20 percent and the risk-free rate is 9.5 percent, what is the company's required return?

Accepted Answer

A)  33.250 percent 
B)  39.375 percent 
C)  48.875 percent 
D)  55.625 percent 
A)  33.250 percent 
B)  39.375 percent 
C)  48.875 percent 
D)  55.625 percent

ABC Inc. has a dividend yield equal to 5 percent and is expected to grow at a 12 percent rate for the next seven years. What is ABC's required return?

A company has a beta of 0.50. If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is the company's required return?

A stock has an expected return of 14.5 percent, the risk-free rate is 4 percent and the return on the market is 11 percent. What is this stock's beta?

IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following statements must be correct?

A company's current stock price is $65.40 and it is likely to pay a $2.25 dividend next year. Since analysts estimate the company will have an 11.25 percent growth rate, what is its expected return?

Which of the following is NOT a necessary condition for an efficient market?

The line on a graph of return and risk (standard deviation) from the risk-free rate through the market portfolio is ________.

You own $8,000 of City Steel stock that has a beta of 2.1. You also own $12,000 of Rent-N-Co (beta = 1.75) and $5,000 of Lincoln Corporation (beta = 0.50). What is the beta of your portfolio?

Which of the following is incorrect?

You own $9,000 of Olympic Steel stock that has a beta of 2.5. You also own $7,000 of Rent-a-Center (beta = 1.2) and $8,000 of Lincoln Educational (beta = 0.4). What is the beta of your portfolio?

Which of the following statements is correct?

A company has a beta of 0.85. If the market return is expected to be 9 percent and the risk-free rate is 2.5 percent, what is the company's required return?

Compute the standard deviation given these four economic states, their likelihoods, and the potential returns: Eccrorric State Probability Return fast growth 0.20 100\% slow growth 0.50 10\% recession 0.20 -1\% depression 0.10 -10\%

You hold the positions in the following table. What is the beta of your portfolio? Price Shares Beta TechNo Comp. \ 15.25 2000 4.0 Delivery Corp. \ 105.00 500 1.4 Computer Corp. \ 35.40 300 0.9 Food Corp. \ 18.75 200 -0.7

You own $1,000 of City Steel stock that has a beta of 1.5. You also own $5,000 of Rent-N-Co (beta = 1.8) and $4,000 of Lincoln Corporation (beta = 0.9). What is the beta of your portfolio?

Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.?

Compute the expected return given these three economic states, their likelihoods, and the potential returns: Eccrorric State Probability Return fast growth 0.2 23\% slow growth 0.6 14\% recession 0.2 -30\%

A company has a beta of 3.75. If the market return is expected to be 20 percent and the risk-free rate is 9.5 percent, what is the company's required return?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 10: Estimating Risk and Return

ABC Inc. has a dividend yield equal to 5 percent and is expected to grow at a 12 percent rate for the next seven years. What is ABC's required return?

A company has a beta of 0.50. If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is the company's required return?

A stock has an expected return of 14.5 percent, the risk-free rate is 4 percent and the return on the market is 11 percent. What is this stock's beta?

IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following statements must be correct?

A company's current stock price is $65.40 and it is likely to pay a $2.25 dividend next year. Since analysts estimate the company will have an 11.25 percent growth rate, what is its expected return?

Which of the following is NOT a necessary condition for an efficient market?

The line on a graph of return and risk (standard deviation) from the risk-free rate through the market portfolio is ________.

You own $8,000 of City Steel stock that has a beta of 2.1. You also own $12,000 of Rent-N-Co (beta = 1.75) and $5,000 of Lincoln Corporation (beta = 0.50). What is the beta of your portfolio?

Which of the following is incorrect?

You own $9,000 of Olympic Steel stock that has a beta of 2.5. You also own $7,000 of Rent-a-Center (beta = 1.2) and $8,000 of Lincoln Educational (beta = 0.4). What is the beta of your portfolio?

Which of the following statements is correct?

A company has a beta of 0.85. If the market return is expected to be 9 percent and the risk-free rate is 2.5 percent, what is the company's required return?

Compute the standard deviation given these four economic states, their likelihoods, and the potential returns: Eccrorric State Probability Return fast growth 0.20 100\% slow growth 0.50 10\% recession 0.20 -1\% depression 0.10 -10\%

You hold the positions in the following table. What is the beta of your portfolio? Price Shares Beta TechNo Comp. \ 15.25 2000 4.0 Delivery Corp. \ 105.00 500 1.4 Computer Corp. \ 35.40 300 0.9 Food Corp. \ 18.75 200 -0.7

You own $1,000 of City Steel stock that has a beta of 1.5. You also own $5,000 of Rent-N-Co (beta = 1.8) and $4,000 of Lincoln Corporation (beta = 0.9). What is the beta of your portfolio?

Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.?

Compute the expected return given these three economic states, their likelihoods, and the potential returns: Eccrorric State Probability Return fast growth 0.2 23\% slow growth 0.6 14\% recession 0.2 -30\%

A company has a beta of 3.75. If the market return is expected to be 20 percent and the risk-free rate is 9.5 percent, what is the company's required return?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters