Question 1

In theory, which of these is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate?

Accepted Answer

A)  efficient market 
B)  market portfolio 
C)  probability distribution 
D)  stock market bubble 
A)  efficient market 
B)  market portfolio 
C)  probability distribution 
D)  stock market bubble

Question 2

Which of these is the reward for taking systematic stock market risk?

Accepted Answer

A)  required return 
B)  risk-free rate 
C)  risk premium 
D)  market risk premium 
A)  required return 
B)  risk-free rate 
C)  risk premium 
D)  market risk premium

Question 3

Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate, what is its required return?

Accepted Answer

A)  16.40 percent 
B)  15.28 percent 
C)  13.62 percent 
D)  14.71 percent 
A)  16.40 percent 
B)  15.28 percent 
C)  13.62 percent 
D)  14.71 percent

Question 4

U.S. Bancorp holds a press conference to announce a positive news event that was unexpected to the market. As soon as the announcement is made, the stock price increases $8 per share but then over the next hour the price continues to increase resulting in a total increase of $11. Given this information which of the following statements is correct?

Accepted Answer

A)  This is an example of a market overreaction. 
B)  This is an example of a market underreaction. 
C)  This is an example of a semi-strong efficient market. 
D)  none of these choices are correct. 
A)  This is an example of a market overreaction. 
B)  This is an example of a market underreaction. 
C)  This is an example of a semi-strong efficient market. 
D)  none of these choices are correct.

Question 5

A manager believes his firm will earn a 12 percent return next year. His firm has a beta of 1.2, the expected return on the market is 8 percent, and the risk-free rate is 3 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is undervalued or overvalued.

Accepted Answer

A)  9 percent, undervalued 
B)  9 percent, overvalued 
C)  13.8 percent, undervalued 
D)  13.8 percent, overvalued 
A)  9 percent, undervalued 
B)  9 percent, overvalued 
C)  13.8 percent, undervalued 
D)  13.8 percent, overvalued

Question 6

A manager believes his firm will earn a 7.5 percent return next year. His firm has a beta of 2, the expected return on the market is 5 percent, and the risk-free rate is 2 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is undervalued or overvalued.

Accepted Answer

A)  8 percent, undervalued 
B)  8 percent, overvalued 
C)  12 percent, undervalued 
D)  12 percent, overvalued 
A)  8 percent, undervalued 
B)  8 percent, overvalued 
C)  12 percent, undervalued 
D)  12 percent, overvalued

Question 7

A company's current stock price is $22.00 and its most recent dividend was $0.75 per share. Since analysts estimate the company will have a 12 percent growth rate, what is its expected return?

Accepted Answer

A)  3.00 percent 
B)  3.48 percent 
C)  12.00 percent 
D)  15.82 percent 
A)  3.00 percent 
B)  3.48 percent 
C)  12.00 percent 
D)  15.82 percent

Question 8

Netflix, Inc. has a beta of 3.61. If the market return is expected to be 13.2 percent and the risk-free rate is 7 percent, what is Netflix's risk premium?

Accepted Answer

A)  20.91 percent 
B)  22.38 percent 
C)  25.72 percent 
D)  29.38 percent 
A)  20.91 percent 
B)  22.38 percent 
C)  25.72 percent 
D)  29.38 percent

Question 9

Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$\begin{array} { c c r } \text { Eccormic State } &\text { Probability } & \text { Retum } \  \text { Fast Growth }&0.40 & 25 \% \\text { slow Growth }& 0.55 & 12 \% \\text { recession }& 0.05 & - 50 \% \end{array}$

Accepted Answer

A)  ?4.3 percent 
B)  14.1 percent 
C)  19.1 percent 
D)  29.0 percent 
A)  ?4.3 percent 
B)  14.1 percent 
C)  19.1 percent 
D)  29.0 percent

Question 10

Expected return is calculated by:

Accepted Answer

A)  multiplying each possible return by the probability, p, of the return occurring. 
B)  adding each possible return by the probability, p, of the return occurring. 
C)  dividing each possible return by the probability, p, of the return occurring. 
D)  None of the above 
A)  multiplying each possible return by the probability, p, of the return occurring. 
B)  adding each possible return by the probability, p, of the return occurring. 
C)  dividing each possible return by the probability, p, of the return occurring. 
D)  None of the above

Question 11

Which of these is the measurement of risk for a collection of stocks for an investor?

Accepted Answer

A)  beta 
B)  efficient market 
C)  expected return 
D)  portfolio beta 
A)  beta 
B)  efficient market 
C)  expected return 
D)  portfolio beta

Question 12

You have a portfolio with a beta of 1.25. What will be the new portfolio beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a beta of 1.75?

Accepted Answer

A)  1.00 
B)  1.35 
C)  1.50 
D)  3.00 
A)  1.00 
B)  1.35 
C)  1.50 
D)  3.00

Question 13

You own $14,000 of Diner's Corp. stock that has a beta of 2.1. You also own $14,000 of Comm Corp. (beta = 1.3) and $12,000 of Airlines Corp. (beta = 0.6). Assume that the market return will be 15 percent and the risk-free rate is 6.5 percent. What is the total risk premium of the portfolio?

Accepted Answer

A)  11.645 percent 
B)  20.55 percent 
C)  23.905 percent 
D)  38.00 percent 
A)  11.645 percent 
B)  20.55 percent 
C)  23.905 percent 
D)  38.00 percent

Question 14

Which of the following is most correct?

Accepted Answer

A)  In an efficient market, investors will buy overvalued stock which will drive its price down. 
B)  In an efficient market, investors will sell undervalued stock which will drive its price down. 
C)  In an efficient market, investors will sell overvalued stock which will drive its price down. 
D)  none of these choices are correct. 
A)  In an efficient market, investors will buy overvalued stock which will drive its price down. 
B)  In an efficient market, investors will sell undervalued stock which will drive its price down. 
C)  In an efficient market, investors will sell overvalued stock which will drive its price down. 
D)  none of these choices are correct.

Question 15

ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years. What is ABC's required return?

Accepted Answer

A)  10 percent 
B)  11 percent 
C)  4 percent 
D)  5 percent 
A)  10 percent 
B)  11 percent 
C)  4 percent 
D)  5 percent

Question 16

The Nasdaq stock market bubble peaked at 10,816 in 2000. Two and a half years later it had fallen to 4,000. What was the percentage decline?

Accepted Answer

A)  −63.02% 
B)  −69.47% 
C)  −57.13% 
D)  −49.18% 
A)  −63.02% 
B)  −69.47% 
C)  −57.13% 
D)  −49.18%

Question 17

Which of the following statements regarding the security market line is NOT true?

Accepted Answer

A)  illustrates how required return relates to risk at any particular time. 
B)  shows the market portfolio's risk premium or any stock's risk premium. 
C)  is similar to the capital market line except risk is characterized by the standard deviation instead of beta. 
D)  can be used to show the relationship between risk and return for any stock or portfolio. 
A)  illustrates how required return relates to risk at any particular time. 
B)  shows the market portfolio's risk premium or any stock's risk premium. 
C)  is similar to the capital market line except risk is characterized by the standard deviation instead of beta. 
D)  can be used to show the relationship between risk and return for any stock or portfolio.

Question 18

The average annual return on the S&P 500 Index from 1986 to 1995 was 17.6 percent. The average annual T-bill yield during the same period was 9.8 percent. What was the market risk premium during these 10 years?

Accepted Answer

A)  8.2 percent 
B)  7.8 percent 
C)  8.8 percent 
D)  9.8 percent 
A)  8.2 percent 
B)  7.8 percent 
C)  8.8 percent 
D)  9.8 percent

Question 19

How might a small market risk premium impact people's desire to buy stocks?

Accepted Answer

A)  Investors with high risk aversion will be less willing to invest in stocks. 
B)  Investors with high risk aversion will be more willing to invest in stocks. 
C)  It will only impact the share prices. 
D)  none of these choices are correct. 
A)  Investors with high risk aversion will be less willing to invest in stocks. 
B)  Investors with high risk aversion will be more willing to invest in stocks. 
C)  It will only impact the share prices. 
D)  none of these choices are correct.

Question 20

Shares of stock issued to employees that have limitations on when they can be sold are known as

Accepted Answer

A)  executive stock options. 
B)  privately held information. 
C)  restricted stock. 
D)  stock market bubble. 
A)  executive stock options. 
B)  privately held information. 
C)  restricted stock. 
D)  stock market bubble.

In theory, which of these is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate?

Which of these is the reward for taking systematic stock market risk?

Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate, what is its required return?

A company's current stock price is $22.00 and its most recent dividend was $0.75 per share. Since analysts estimate the company will have a 12 percent growth rate, what is its expected return?

Netflix, Inc. has a beta of 3.61. If the market return is expected to be 13.2 percent and the risk-free rate is 7 percent, what is Netflix's risk premium?

Compute the expected return given these three economic states, their likelihoods, and the potential returns: Eccormic State Probability Retum Fast Growth 0.40 25\% slow Growth 0.55 12\% recession 0.05 -50\%

Expected return is calculated by:

Which of these is the measurement of risk for a collection of stocks for an investor?

You have a portfolio with a beta of 1.25. What will be the new portfolio beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a beta of 1.75?

You own $14,000 of Diner's Corp. stock that has a beta of 2.1. You also own $14,000 of Comm Corp. (beta = 1.3) and $12,000 of Airlines Corp. (beta = 0.6). Assume that the market return will be 15 percent and the risk-free rate is 6.5 percent. What is the total risk premium of the portfolio?

Which of the following is most correct?

ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years. What is ABC's required return?

The Nasdaq stock market bubble peaked at 10,816 in 2000. Two and a half years later it had fallen to 4,000. What was the percentage decline?

Which of the following statements regarding the security market line is NOT true?

The average annual return on the S&P 500 Index from 1986 to 1995 was 17.6 percent. The average annual T-bill yield during the same period was 9.8 percent. What was the market risk premium during these 10 years?

How might a small market risk premium impact people's desire to buy stocks?

Shares of stock issued to employees that have limitations on when they can be sold are known as

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

In theory, which of these is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate?

Which of these is the reward for taking systematic stock market risk?

Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate, what is its required return?

A company's current stock price is $22.00 and its most recent dividend was $0.75 per share. Since analysts estimate the company will have a 12 percent growth rate, what is its expected return?

Netflix, Inc. has a beta of 3.61. If the market return is expected to be 13.2 percent and the risk-free rate is 7 percent, what is Netflix's risk premium?

Compute the expected return given these three economic states, their likelihoods, and the potential returns: Eccormic State Probability Retum Fast Growth 0.40 25\% slow Growth 0.55 12\% recession 0.05 -50\%

Expected return is calculated by:

Which of these is the measurement of risk for a collection of stocks for an investor?

You have a portfolio with a beta of 1.25. What will be the new portfolio beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a beta of 1.75?

You own $14,000 of Diner's Corp. stock that has a beta of 2.1. You also own $14,000 of Comm Corp. (beta = 1.3) and $12,000 of Airlines Corp. (beta = 0.6). Assume that the market return will be 15 percent and the risk-free rate is 6.5 percent. What is the total risk premium of the portfolio?

Which of the following is most correct?

ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years. What is ABC's required return?

The Nasdaq stock market bubble peaked at 10,816 in 2000. Two and a half years later it had fallen to 4,000. What was the percentage decline?

Which of the following statements regarding the security market line is NOT true?

The average annual return on the S&P 500 Index from 1986 to 1995 was 17.6 percent. The average annual T-bill yield during the same period was 9.8 percent. What was the market risk premium during these 10 years?

How might a small market risk premium impact people's desire to buy stocks?

Shares of stock issued to employees that have limitations on when they can be sold are known as

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