Exam 12: Risk, Return, and Capital Budgeting

If Treasury bills are yielding 10% at a time when the market risk premium is 6%, then the:

What return should be expected from investing in the market portfolio which is expected to yield 18% if the investment includes all of the investor's funds plus 100% of additional funds borrowed at the risk-free rate of 6%?

What is the Beta of a three-stock portfolio including 25% of Stock A with a Beta of .90, 40% Stock B with a Beta of 1.05, and 35% Stock C with a Beta of 1.73?

By how much will you misvalue the firm if its Beta is actually .6.

What type of risk is properly reflected in a project's discount rate?

Determine the risk free rate if a company's rate of return is 12%, its Beta is -1.2 and the expected return on the stock market is 14%.

The company cost of capital may be an inappropriate discount rate for a capital budgeting proposal if:

The manager of StarPerformer Mutual Fund expects the fund to earn a rate of return of 12% this year.The Beta of the fund's portfolio is .8.If the rate of return available on risk-free assets is 5% and you expect the rate of return on the market portfolio to be 15%, should you invest in StarPerformer? Can you create a portfolio with the same risk as StarPerformer Mutual Fund, but with a higher expected rate of return? Explain why in reality, a mutual fund must be able to provide an expected rate of return that is higher than that predicted by the security market line in order for investors to consider the fund an attractive investment opportunity.

The correct opportunity cost for a project is determined to be 15% and the project is expected to generate $1 million in cash flows at the end of the next four years after an initial outlay of $3 million.Based on this information, the project would plot:

Determine which of the following projects have positive NPV's given the risk free rate is 5% and the market risk premium is 9%.

A project with a higher than average risk offers an expected return of 18%.Which statement is correct if the company's opportunity cost of capital is 12% and the project's opportunity cost of capital is 15%?

What is the expected yield on the market portfolio at a time when Treasury bills yield 6% and a stock with a Beta of 1.4 is expected to yield 18%?

In practice, the market portfolio is often represented by:

If the slope of the line measuring a stock's historic returns against the market's historic returns is positive, then the stock:

When the overall market is up by 10%, an investor with a portfolio of defensive stocks will probably have:

If you were willing to bet that the overall stock market was heading up on a sustained basis, it would be logical to invest in:

The slope of the regression line that exhibits the past relationship between a stock's return and the market's return is the:

If changing discount rates from the company cost of capital to the project cost of capital changes NPV from negative to positive, then the project should use the:

What effect might operating leverage be expected to have on a project's Beta?

What return should be expected from investing in the market portfolio that is expected to yield 18% if the investment includes all of the investor's funds plus 30% of additional funds borrowed at the risk-free rate of 6%?