Question 1

The market price of ABC stock is most apt to be affected by which one of these events?

Accepted Answer

A) Twenty-five percent increase in interest rates,just as expected 
B) The sudden passing of ABC's CEO 
C) An increase in ABC's annual dividend by the same percentage as last year's increase 
D) The completion of ABC's new distribution center,right on schedule 
E) An increase in ABC's payroll costs,in line with current inflation 
A) Twenty-five percent increase in interest rates,just as expected 
B) The sudden passing of ABC's CEO 
C) An increase in ABC's annual dividend by the same percentage as last year's increase 
D) The completion of ABC's new distribution center,right on schedule 
E) An increase in ABC's payroll costs,in line with current inflation

Question 2

Assume two securities are negatively correlated.If these two securities are combined into an equally weighted portfolio,the portfolio standard deviation must be

Accepted Answer

A) equal to the standard deviation of the overall market. 
B) equal to the arithmetic average of the standard deviations of the individual securities. 
C) equal to zero. 
D) less than the weighted average of the standard deviations of the individual securities. 
E) equal to or greater than the lowest standard deviation of the two securities. 
A) equal to the standard deviation of the overall market. 
B) equal to the arithmetic average of the standard deviations of the individual securities. 
C) equal to zero. 
D) less than the weighted average of the standard deviations of the individual securities. 
E) equal to or greater than the lowest standard deviation of the two securities.

Question 3

PPO stock has a beta of 0.97 and an expected return of 11.22 percent.The risk-free rate of return is 2.48 percent.What is the expected return on the market?

Accepted Answer

A) 11.85% 
B) 13.04% 
C) 11.62% 
D) 11.49% 
E) 12.16% 
A) 11.85% 
B) 13.04% 
C) 11.62% 
D) 11.49% 
E) 12.16%

Question 4

If there is no diversification benefit derived from combining two risky stocks into one portfolio,then the

Accepted Answer

A) returns on the two stocks must move perfectly in sync with one another. 
B) returns on the two stocks must move perfectly opposite of one another. 
C) stocks must have a zero correlation. 
D) portfolio is equally weighted between the two stocks. 
E) two stocks are completely unrelated to one another. 
A) returns on the two stocks must move perfectly in sync with one another. 
B) returns on the two stocks must move perfectly opposite of one another. 
C) stocks must have a zero correlation. 
D) portfolio is equally weighted between the two stocks. 
E) two stocks are completely unrelated to one another.

Question 5

Which one of the following is the best example of systematic risk?

Accepted Answer

A) The price of tomatoes declines sharply. 
B) Inflation rises unexpectedly. 
C) Commercial airline pilots go on strike. 
D) A hurricane hits a tourist destination. 
E) People become diet conscious and avoid fast food restaurants. 
A) The price of tomatoes declines sharply. 
B) Inflation rises unexpectedly. 
C) Commercial airline pilots go on strike. 
D) A hurricane hits a tourist destination. 
E) People become diet conscious and avoid fast food restaurants.

Question 6

The stock of Martin Industries has a beta of 1.17.The risk-free rate of return is 2.9 percent,and the market risk premium is 6.93 percent.What is the expected rate of return on Martin Industries stock?

Accepted Answer

A) 11.01% 
B) 6)91% 
C) 16.42% 
D) 14.46% 
E) 10.19% 
A) 11.01% 
B) 6)91% 
C) 16.42% 
D) 14.46% 
E) 10.19%

Question 7

You recently purchased a stock that is expected to earn 12 percent in a booming economy,9 percent in a normal economy,and lose 15 percent in a recessionary economy.The probabilities of a boom,a normal economy,and a recession are 18,75,and 7 percent,respectively.What is your expected rate of return on this stock?

Accepted Answer

A) 7)93% 
B) 7)45% 
C) 7)86% 
D) 7)75% 
E) 7)68% 
A) 7)93% 
B) 7)45% 
C) 7)86% 
D) 7)75% 
E) 7)68%

Question 8

The expected return on a portfolio

Accepted Answer

A) can be greater than the expected return on the best performing security in the portfolio. 
B) can be less than the expected return on the worst performing security in the portfolio. 
C) is independent of the performance of the overall economy. 
D) is limited by the returns on the individual securities within the portfolio. 
E) is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal. 
A) can be greater than the expected return on the best performing security in the portfolio. 
B) can be less than the expected return on the worst performing security in the portfolio. 
C) is independent of the performance of the overall economy. 
D) is limited by the returns on the individual securities within the portfolio. 
E) is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal.

Question 9

A portfolio consists of 200 shares of Stock A,300 shares of Stock B,500 shares of Stock C,and 700 shares of Stock D.The prices of these stocks are $19,$36,$21,and $15 for Stocks A through D,respectively.What is the portfolio weight of Stock C?

Accepted Answer

A) 31.08% 
B) 32.20% 
C) 29.49% 
D) 25.72% 
E) 36.89% 
A) 31.08% 
B) 32.20% 
C) 29.49% 
D) 25.72% 
E) 36.89%

Question 10

Which one of these measures the squared deviations of actual returns from expected returns?

Accepted Answer

A) Variance 
B) Covariance 
C) Beta 
D) Correlation 
E) Alpha 
A) Variance 
B) Covariance 
C) Beta 
D) Correlation 
E) Alpha

Question 11

Mr.Rhoades is the CEO of Daily News.The majority of stockholders do not approve of the decisions made by Mr.Rhoades and have repeatedly requested that he be ousted.Over the last couple of months,it has become apparent that the CEO is going to be replaced by a member of the board,Mr.Bentley,who is highly respected.This morning,the official announcement was made that Mr.Rhoades has stepped down and will be replaced immediately by Mr.Bentley.How is the stock price of the Daily News most apt to react to this announcement?

Accepted Answer

A) Highly positive and immediate reaction 
B) A slow but positive reaction 
C) An immediate negative reaction 
D) Middling reaction over multiple days 
E) No reaction 
A) Highly positive and immediate reaction 
B) A slow but positive reaction 
C) An immediate negative reaction 
D) Middling reaction over multiple days 
E) No reaction

Question 12

When computing the expected return on a portfolio of stocks the portfolio weights are based on the

Accepted Answer

A) number of shares owned in each stock. 
B) price per share of each stock. 
C) market value of the total shares held in each stock. 
D) original amount invested in each stock. 
E) cost per share of each stock held. 
A) number of shares owned in each stock. 
B) price per share of each stock. 
C) market value of the total shares held in each stock. 
D) original amount invested in each stock. 
E) cost per share of each stock held.

Question 13

A stock with a beta of zero would be expected to have a rate of return equal to

Accepted Answer

A) the prime rate. 
B) the average AAA bond. 
C) the market rate. 
D) the risk-free rate. 
E) zero. 
A) the prime rate. 
B) the average AAA bond. 
C) the market rate. 
D) the risk-free rate. 
E) zero.

Question 14

Which one of these statements is correct regarding a portfolio of two risky securities?

Accepted Answer

A) Both the rate of return and the standard deviation of a portfolio can be changed by changing the portfolio weights. 
B) The opportunity set is represented by a forward bending curve when expected returns are graphed against standard deviation. 
C) Diversification occurs when the correlation between two securities is +1. 
D) The standard deviation of a portfolio cannot be lower than the weighted average standard deviation of the securities held within the portfolio. 
E) The minimum variance portfolio of two stocks also represents the portfolio's highest possible rate of return. 
A) Both the rate of return and the standard deviation of a portfolio can be changed by changing the portfolio weights. 
B) The opportunity set is represented by a forward bending curve when expected returns are graphed against standard deviation. 
C) Diversification occurs when the correlation between two securities is +1. 
D) The standard deviation of a portfolio cannot be lower than the weighted average standard deviation of the securities held within the portfolio. 
E) The minimum variance portfolio of two stocks also represents the portfolio's highest possible rate of return.

Question 15

A stock with an actual return that lies above the security market line has

Accepted Answer

A) less systematic risk than the overall market. 
B) more risk than warranted based on the realized rate of return. 
C) yielded a return equivalent to the level of risk assumed. 
D) more systematic risk than the overall market. 
E) yielded a higher return than expected for the level of risk assumed. 
A) less systematic risk than the overall market. 
B) more risk than warranted based on the realized rate of return. 
C) yielded a return equivalent to the level of risk assumed. 
D) more systematic risk than the overall market. 
E) yielded a higher return than expected for the level of risk assumed.

Question 16

A security that is fairly priced will have a return that lies ________ the security market line.

Accepted Answer

A) below 
B) on or below 
C) on 
D) on or above 
E) above 
A) below 
B) on or below 
C) on 
D) on or above 
E) above

Question 17

Assume the risk-free rate of return is 6.5 percent and the market rate of return is 11.2 percent.Stock A with a beta of 0.88 and an expected return of 9.79 percent;Stock B with a beta of 1.26 and an expected return of 11.36 percent;Stock C with a beta of 1.47 and an expected return of 12.28 percent;Stock D with a beta of 0.79 and an expected return of 10.61 percent.Which one of the following stocks,if any,is correctly priced according to CAPM?

Accepted Answer

A) Stock A 
B) Stock B 
C) Stock C 
D) Stock D 
E) None of the stocks are correctly priced according to CAPM. 
A) Stock A 
B) Stock B 
C) Stock C 
D) Stock D 
E) None of the stocks are correctly priced according to CAPM.

Question 18

A stock has an expected return of 13.74 percent.The return on the market is 12.68 percent,and the risk-free rate of return is 3.24 percent.What is the beta of this stock?

Accepted Answer

A) 0)658 
B) 1)093 
C) 1)402 
D) 1)112 
E) 1)780 
A) 0)658 
B) 1)093 
C) 1)402 
D) 1)112 
E) 1)780

Question 19

The dominant portfolio with the lowest possible level of risk out of a set of portfolios consisting of two securities is referred to as the

Accepted Answer

A) efficient frontier. 
B) minimum variance portfolio. 
C) upper tail of the efficient set. 
D) tangency portfolio. 
E) risk-free portfolio. 
A) efficient frontier. 
B) minimum variance portfolio. 
C) upper tail of the efficient set. 
D) tangency portfolio. 
E) risk-free portfolio.

Question 20

Your desired portfolio beta is 1.2.Currently,your portfolio consists of $2,300 invested in Stock A with a beta of 1.43 and $3,800 in Stock B with a beta of 0.79.You have an additional $1,500 to invest and want to divide it between Stock C with a beta of 1.59 and a risk-free asset.How much should you invest in the risk-free asset?

Accepted Answer

A) −$279.25 
B) $50.25 
C) −$200.15 
D) $182.35 
E) $246.08 
A) −$279.25 
B) $50.25 
C) −$200.15 
D) $182.35 
E) $246.08

The market price of ABC stock is most apt to be affected by which one of these events?

Assume two securities are negatively correlated.If these two securities are combined into an equally weighted portfolio,the portfolio standard deviation must be

PPO stock has a beta of 0.97 and an expected return of 11.22 percent.The risk-free rate of return is 2.48 percent.What is the expected return on the market?

If there is no diversification benefit derived from combining two risky stocks into one portfolio,then the

Which one of the following is the best example of systematic risk?

The stock of Martin Industries has a beta of 1.17.The risk-free rate of return is 2.9 percent,and the market risk premium is 6.93 percent.What is the expected rate of return on Martin Industries stock?

The expected return on a portfolio

A portfolio consists of 200 shares of Stock A,300 shares of Stock B,500 shares of Stock C,and 700 shares of Stock D.The prices of these stocks are $19,$36,$21,and $15 for Stocks A through D,respectively.What is the portfolio weight of Stock C?

Which one of these measures the squared deviations of actual returns from expected returns?

When computing the expected return on a portfolio of stocks the portfolio weights are based on the

A stock with a beta of zero would be expected to have a rate of return equal to

Which one of these statements is correct regarding a portfolio of two risky securities?

A stock with an actual return that lies above the security market line has

A security that is fairly priced will have a return that lies ________ the security market line.

A stock has an expected return of 13.74 percent.The return on the market is 12.68 percent,and the risk-free rate of return is 3.24 percent.What is the beta of this stock?

The dominant portfolio with the lowest possible level of risk out of a set of portfolios consisting of two securities is referred to as the

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

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Exam 11: Return Amcq Risk: the Capital Asset Pricing Model Capm

The market price of ABC stock is most apt to be affected by which one of these events?

Assume two securities are negatively correlated.If these two securities are combined into an equally weighted portfolio,the portfolio standard deviation must be

PPO stock has a beta of 0.97 and an expected return of 11.22 percent.The risk-free rate of return is 2.48 percent.What is the expected return on the market?

If there is no diversification benefit derived from combining two risky stocks into one portfolio,then the

Which one of the following is the best example of systematic risk?

The stock of Martin Industries has a beta of 1.17.The risk-free rate of return is 2.9 percent,and the market risk premium is 6.93 percent.What is the expected rate of return on Martin Industries stock?

The expected return on a portfolio

A portfolio consists of 200 shares of Stock A,300 shares of Stock B,500 shares of Stock C,and 700 shares of Stock D.The prices of these stocks are $19,$36,$21,and $15 for Stocks A through D,respectively.What is the portfolio weight of Stock C?

Which one of these measures the squared deviations of actual returns from expected returns?

When computing the expected return on a portfolio of stocks the portfolio weights are based on the

A stock with a beta of zero would be expected to have a rate of return equal to

Which one of these statements is correct regarding a portfolio of two risky securities?

A stock with an actual return that lies above the security market line has

A security that is fairly priced will have a return that lies ________ the security market line.

A stock has an expected return of 13.74 percent.The return on the market is 12.68 percent,and the risk-free rate of return is 3.24 percent.What is the beta of this stock?

The dominant portfolio with the lowest possible level of risk out of a set of portfolios consisting of two securities is referred to as the

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters