Question 1

The prime rate is commonly used as a proxy for the risk-free rate in the capital asset pricing model (CAPM).

Accepted Answer

A) True 
 B)False

Question 2

A stock's average return is 10 percent. The average risk-free rate is 7 percent. The standard deviation of the stock's return is 4 percent, and the stock's beta is 1.5. What is the Treynor index for the stock?

Accepted Answer

A) .03 
B) .75 
C) 1.33 
D) .02 
E) 50 
A) .03 
B) .75 
C) 1.33 
D) .02 
E) 50

Question 3

A relatively simple method of valuing a stock is to apply the mean price-earnings (PE)ratio of all publicly traded competitors in the respective industry to the firm's expected earnings for the year.

Accepted Answer

A) True 
 B)False

Question 4

If investors agree on a firm's forecasted earnings, they will derive the same value for that firm using the PE method to value the firm's stock.

Accepted Answer

A) True 
 B)False

Question 5

The demand by foreign investors for the stock of a U.S. firm sold on a U.S. exchange may be higher when the dollar is expected to ____, other things being equal. (Assume the firm's operations are unaffected by the value of the dollar.)

Accepted Answer

A) strengthen 
B) weaken 
C) stabilize 
D) weaken and then stabilize 
A) strengthen 
B) weaken 
C) stabilize 
D) weaken and then stabilize

Question 6

The ____ is often used to estimate the required rate of return for any firm with public traded stock.

Accepted Answer

A) capital asset pricing model 
B) Treynor index 
C) Sharpe index 
D) Treynor index AND Sharpe index 
A) capital asset pricing model 
B) Treynor index 
C) Sharpe index 
D) Treynor index AND Sharpe index

Question 7

If the standard deviation of a stock's returns over the last 12 quarters is 4 percent, and if there is no perceived change in volatility, there is a ____ percent probability that the stock's returns will be within ____ percentage points of the expected outcome.

Accepted Answer

A) 68; 4 
B) 68; 8 
C) 95; 8 
D) 95; 6 
E) None of these are correct. 
A) 68; 4 
B) 68; 8 
C) 95; 8 
D) 95; 6 
E) None of these are correct.

The prime rate is commonly used as a proxy for the risk-free rate in the capital asset pricing model (CAPM).

A stock's average return is 10 percent. The average risk-free rate is 7 percent. The standard deviation of the stock's return is 4 percent, and the stock's beta is 1.5. What is the Treynor index for the stock?

A relatively simple method of valuing a stock is to apply the mean price-earnings (PE)ratio of all publicly traded competitors in the respective industry to the firm's expected earnings for the year.

If investors agree on a firm's forecasted earnings, they will derive the same value for that firm using the PE method to value the firm's stock.

The demand by foreign investors for the stock of a U.S. firm sold on a U.S. exchange may be higher when the dollar is expected to ____, other things being equal. (Assume the firm's operations are unaffected by the value of the dollar.)

The ____ is often used to estimate the required rate of return for any firm with public traded stock.

If the standard deviation of a stock's returns over the last 12 quarters is 4 percent, and if there is no perceived change in volatility, there is a percent probability that the stock's returns will be within percentage points of the expected outcome.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters

Exam 11: Stock Valuation and Risk

The prime rate is commonly used as a proxy for the risk-free rate in the capital asset pricing model (CAPM).

A stock's average return is 10 percent. The average risk-free rate is 7 percent. The standard deviation of the stock's return is 4 percent, and the stock's beta is 1.5. What is the Treynor index for the stock?

A relatively simple method of valuing a stock is to apply the mean price-earnings (PE)ratio of all publicly traded competitors in the respective industry to the firm's expected earnings for the year.

If investors agree on a firm's forecasted earnings, they will derive the same value for that firm using the PE method to value the firm's stock.

The demand by foreign investors for the stock of a U.S. firm sold on a U.S. exchange may be higher when the dollar is expected to ____, other things being equal. (Assume the firm's operations are unaffected by the value of the dollar.)

The ____ is often used to estimate the required rate of return for any firm with public traded stock.

If the standard deviation of a stock's returns over the last 12 quarters is 4 percent, and if there is no perceived change in volatility, there is a ____ percent probability that the stock's returns will be within ____ percentage points of the expected outcome.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters

If the standard deviation of a stock's returns over the last 12 quarters is 4 percent, and if there is no perceived change in volatility, there is a percent probability that the stock's returns will be within percentage points of the expected outcome.