Exam 11: Risk and Rates of Return

Berg Inc.has just paid a dividend of $2.00.Its stock is now selling for $48 per share.The firm is half as risky as the market.The expected return on the market is 14 percent,and the yield on U.S.Treasury bonds is 11 percent.If the market is in equilibrium,what rate of growth is expected?

(Multiple Choice)

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Question 21

You are an investor in common stock,and you currently hold a well-diversified portfolio which has an expected return of 12 percent,a beta of 1.2,and a total value of $9,000.You plan to increase your portfolio by buying 100 shares of AT&E at $10 a share.AT&E has an expected return of 20 percent with a beta of 2.0.What will be the expected return and the beta of your portfolio after you purchase the new stock?

(Multiple Choice)

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Question 22

Which of the following statements is most correct?

(Multiple Choice)

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Question 23

Risk averse investors require rates of return for investments with risk.

(Multiple Choice)

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Question 24

Motor Homes Inc.(MHI)is presently in a stage of abnormally high growth because of a surge in the demand for motor homes.The company expects earnings and dividends to grow at a rate of 20 percent for the next 4 years,after which time there will be no growth (g = 0)in earnings and dividends.The company's last dividend was $1.50.MHI has a beta of 1.6,the return on the market is currently 12.75 percent,and the risk-free rate is 4 percent.What should be the current price per share of common stock?

(Multiple Choice)

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Question 25

Carlson Products,a constant growth company,has a current market (and equilibrium)stock price of $20.00.Carlson's next dividend, ,is forecasted to be $2.00,and Carlson is growing at an annual rate of 6 percent.Carlson has a beta coefficient of 1.2,and the required rate of return on the market is 15 percent.As Carlson's financial manager,you have access to insider information concerning a switch in product lines which would not change the growth rate,but would cut Carlson's beta coefficient in half.If you buy the stock at the current market price,what is your expected percentage capital gain?

(Multiple Choice)

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Question 26

The beta of any portfolio can be computed as the

(Multiple Choice)

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Question 27

Given the following information,determine which beta coefficient for Stock A is consistent with equilibrium: r_s = 11.3%;r_RF = 5%;r_M = 10%

(Multiple Choice)

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Question 28

Which of the following statements is most correct?

(Multiple Choice)

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Question 29

The distributions of rates of return for Companies AA and BB are given below: We can conclude from the above information that any rational risk-averse investor will add Security AA to a well-diversified portfolio over Security BB.

(True/False)

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Question 30

If I know for sure that the market will have a positive return over the next year,to maximize my rate of return,I should increase the beta of my portfolio.

(True/False)

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Question 31

If the risk-free rate is 7 percent,the expected return on the market is 10 percent,and the expected return on Security J is 13 percent,what is the beta of Security J?

(Multiple Choice)

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Question 32

You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks.The portfolio beta is equal to 1.15.You have decided to sell one of your stocks,a lead mining stock whose β = 1.0,for $5,000 net and to use the proceeds to buy $5,000 of stock in a steel company whose β = 2.0.What will be the new beta of the portfolio?

(Multiple Choice)

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Question 33

Stock A has a beta of 1.5 and Stock B has a beta of 0.5.Which of the following statements must be true about these securities? (Assume the market is in equilibrium. )

(Multiple Choice)

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Question 34

Assume that a new law is passed which restricts investors to holding only one asset.A risk-averse investor is considering two possible assets as the asset to be held in isolation.The assets' possible returns and related probabilities (i.e. ,the probability distributions)are as follows: Which asset should be preferred?

(Multiple Choice)

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Question 35

Which of the following statements is correct?

(Multiple Choice)

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Question 36

Which of the following statements is false?

(Multiple Choice)

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Question 37

The risk and return characteristics of an investment should not be evaluated in isolation;instead,the risk return and return of an individual security should be analyzed in terms of how that security affects the risk and return of the portfolio in which it is held.

(True/False)

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Question 38

When comparing two different stocks with the same expected return but different standard deviations,you must compute the coefficient of variation to determine which stock is preferred.

(True/False)

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Question 39

is the appropriate measure for stand-alone risk and is the appropriate measure of risk when adding an asset to a diversified portfolio.

(Multiple Choice)

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Question 40

Showing 21 - 40 of 104

Berg Inc.has just paid a dividend of $2.00.Its stock is now selling for $48 per share.The firm is half as risky as the market.The expected return on the market is 14 percent,and the yield on U.S.Treasury bonds is 11 percent.If the market is in equilibrium,what rate of growth is expected?

Which of the following statements is most correct?

Risk averse investors require rates of return for investments with risk.

The beta of any portfolio can be computed as the

Given the following information,determine which beta coefficient for Stock A is consistent with equilibrium: r_s = 11.3%;r_RF = 5%;r_M = 10%

Which of the following statements is most correct?

The distributions of rates of return for Companies AA and BB are given below: We can conclude from the above information that any rational risk-averse investor will add Security AA to a well-diversified portfolio over Security BB.

If I know for sure that the market will have a positive return over the next year,to maximize my rate of return,I should increase the beta of my portfolio.

If the risk-free rate is 7 percent,the expected return on the market is 10 percent,and the expected return on Security J is 13 percent,what is the beta of Security J?

Stock A has a beta of 1.5 and Stock B has a beta of 0.5.Which of the following statements must be true about these securities? (Assume the market is in equilibrium. )

Which of the following statements is correct?

Which of the following statements is false?

The risk and return characteristics of an investment should not be evaluated in isolation;instead,the risk return and return of an individual security should be analyzed in terms of how that security affects the risk and return of the portfolio in which it is held.

When comparing two different stocks with the same expected return but different standard deviations,you must compute the coefficient of variation to determine which stock is preferred.

is the appropriate measure for stand-alone risk and is the appropriate measure of risk when adding an asset to a diversified portfolio.

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters

Exam 11: Risk and Rates of Return

Berg Inc.has just paid a dividend of $2.00.Its stock is now selling for $48 per share.The firm is half as risky as the market.The expected return on the market is 14 percent,and the yield on U.S.Treasury bonds is 11 percent.If the market is in equilibrium,what rate of growth is expected?

Which of the following statements is most correct?

Risk averse investors require ____ rates of return for investments with ____ risk.

The beta of any portfolio can be computed as the

Given the following information,determine which beta coefficient for Stock A is consistent with equilibrium: rs = 11.3%;rRF = 5%;rM = 10%

Which of the following statements is most correct?

The distributions of rates of return for Companies AA and BB are given below: We can conclude from the above information that any rational risk-averse investor will add Security AA to a well-diversified portfolio over Security BB.

If I know for sure that the market will have a positive return over the next year,to maximize my rate of return,I should increase the beta of my portfolio.

If the risk-free rate is 7 percent,the expected return on the market is 10 percent,and the expected return on Security J is 13 percent,what is the beta of Security J?

Stock A has a beta of 1.5 and Stock B has a beta of 0.5.Which of the following statements must be true about these securities? (Assume the market is in equilibrium. )

Which of the following statements is correct?

Which of the following statements is false?

The risk and return characteristics of an investment should not be evaluated in isolation;instead,the risk return and return of an individual security should be analyzed in terms of how that security affects the risk and return of the portfolio in which it is held.

When comparing two different stocks with the same expected return but different standard deviations,you must compute the coefficient of variation to determine which stock is preferred.

____ is the appropriate measure for stand-alone risk and ____ is the appropriate measure of risk when adding an asset to a diversified portfolio.

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters

Risk averse investors require rates of return for investments with risk.

Given the following information,determine which beta coefficient for Stock A is consistent with equilibrium: r_s = 11.3%;r_RF = 5%;r_M = 10%

is the appropriate measure for stand-alone risk and is the appropriate measure of risk when adding an asset to a diversified portfolio.