Question 1

Which of the following is incorrect?

Accepted Answer

A) Technical analysis is expected to work if markets are weak-form efficient. 
B) If markets are strong-form efficient then they must also be weak-form efficient. 
C) It is not likely that the market is strong-form efficient. 
D) none of these choices are complete. 
A) Technical analysis is expected to work if markets are weak-form efficient. 
B) If markets are strong-form efficient then they must also be weak-form efficient. 
C) It is not likely that the market is strong-form efficient. 
D) none of these choices are complete.

Question 2

Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. By how much does Stock A's risk premium exceed the risk premium of Stock B?

Accepted Answer

A) 3.25 percent 
B) 6.25 percent 
C) 8.00 percent 
D) 7.00 percent 
A) 3.25 percent 
B) 6.25 percent 
C) 8.00 percent 
D) 7.00 percent

Question 3

Which of the following statements is incorrect?

Accepted Answer

A) The security market line shows the relationship between risk and return for any stock or portfolio. 
B) The y-intercept of the security market line represents the return on the risk-free asset. 
C) The measure of risk used in creating the security market line is the standard deviation. 
D) none of these choices are complete. 
A) The security market line shows the relationship between risk and return for any stock or portfolio. 
B) The y-intercept of the security market line represents the return on the risk-free asset. 
C) The measure of risk used in creating the security market line is the standard deviation. 
D) none of these choices are complete.

Question 4

Consider an asset that provides the same return no matter what economic state occurs. What would be the standard deviation of this asset?

Accepted Answer

A) Unable to answer since there is no data to calculate the standard deviation. 
B) A very low number since it would have very low risk. 
C) 1 
D) 0 
A) Unable to answer since there is no data to calculate the standard deviation. 
B) A very low number since it would have very low risk. 
C) 1 
D) 0

Question 5

A company's current stock price is $84.50 and it is likely to pay a $3.50 dividend next year. Since analysts estimate the company will have a 10 percent growth rate, what is its expected return?

Accepted Answer

A) 4.14 percent 
B) 4.26 percent 
C) 10.00 percent 
D) 14.14 percent 
A) 4.14 percent 
B) 4.26 percent 
C) 10.00 percent 
D) 14.14 percent

Question 6

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 7

Stock A has a required return of 12 percent. Stock B has a required return of 15 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?

Accepted Answer

A) Stock A is riskier. 
B) Stock B is riskier. 
C) The stocks have the same risk. 
D) We would need to know if the markets are efficient to answer this question. 
A) Stock A is riskier. 
B) Stock B is riskier. 
C) The stocks have the same risk. 
D) We would need to know if the markets are efficient to answer this question.

Question 8

Which of the following is the reward investors require for taking 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 9

A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return?

Accepted Answer

A) 22.750 percent 
B) 33.125 percent 
C) 45.500 percent 
D) 51.000 percent 
A) 22.750 percent 
B) 33.125 percent 
C) 45.500 percent 
D) 51.000 percent

Question 10

Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?

Accepted Answer

A) Stock A is riskier. 
B) Stock B is riskier. 
C) The stocks have the same risk. 
D) We would need to know if the markets are efficient to answer this question. 
A) Stock A is riskier. 
B) Stock B is riskier. 
C) The stocks have the same risk. 
D) We would need to know if the markets are efficient to answer this question.

Question 11

Which of these is a measure of the sensitivity of a stock or portfolio to market risk?

Accepted Answer

A) behavioral finance 
B) beta 
C) efficient market 
D) hedge 
A) behavioral finance 
B) beta 
C) efficient market 
D) hedge

Question 12

Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: Economic State
Probability
Return
Fast Growth
0)1
50%
Slow Growth
0)6
8%
Recession
0)3
-10%

Accepted Answer

A) 6.8 percent 
B) 16.5 percent 
C) 21.5 percent 
D) 46.4 percent 
A) 6.8 percent 
B) 16.5 percent 
C) 21.5 percent 
D) 46.4 percent

Question 13

You own $9,000 of Olympic Steel stock that has a beta of 2.5. You also own $7,000 of Rent-a-Center (beta = 1.2) and $8,000 of Lincoln Educational (beta = 0.4). What is the beta of your portfolio?

Accepted Answer

A) 1.18 
B) 1.07 
C) 1.42 
D) 1.53 
A) 1.18 
B) 1.07 
C) 1.42 
D) 1.53

Question 14

Compute the expected return given these three economic states, their likelihoods, and the potential returns:

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 15

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 complete. 
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 complete.

Question 16

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 17

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 18

Which of the following is correct?

Accepted Answer

A) Hedge funds often sell stock they don't even own. 
B) Hedge funds maintain secrecy about their holdings, trading, and strategies. 
C) Hedge funds are limited to sophisticated investors. 
D) All of these choices are correct. 
A) Hedge funds often sell stock they don't even own. 
B) Hedge funds maintain secrecy about their holdings, trading, and strategies. 
C) Hedge funds are limited to sophisticated investors. 
D) All of these choices are correct.

Question 19

You own $8,000 of City Steel stock that has a beta of 2.1. You also own $12,000 of Rent-N-Co (beta = 1.75) and $5,000 of Lincoln Corporation (beta = 0.50). What is the beta of your portfolio?

Accepted Answer

A) 1.45 
B) 1.61 
C) 2.10 
D) 4.35 
A) 1.45 
B) 1.61 
C) 2.10 
D) 4.35

Question 20

How might a large 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 complete. 
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 complete.

Which of the following is incorrect?

Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. By how much does Stock A's risk premium exceed the risk premium of Stock B?

Which of the following statements is incorrect?

Consider an asset that provides the same return no matter what economic state occurs. What would be the standard deviation of this asset?

A company's current stock price is $84.50 and it is likely to pay a $3.50 dividend next year. Since analysts estimate the company will have a 10 percent growth rate, what is its expected 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?

Stock A has a required return of 12 percent. Stock B has a required return of 15 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?

Which of the following is the reward investors require for taking risk?

A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return?

Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?

Which of these is a measure of the sensitivity of a stock or portfolio to market risk?

Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0)1 50% Slow Growth 0)6 8% Recession 0)3 -10%

You own $9,000 of Olympic Steel stock that has a beta of 2.5. You also own $7,000 of Rent-a-Center (beta = 1.2) and $8,000 of Lincoln Educational (beta = 0.4). What is the beta of your portfolio?

Compute the expected return given these three economic states, their likelihoods, and the potential returns:

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

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?

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?

Which of the following is correct?

You own $8,000 of City Steel stock that has a beta of 2.1. You also own $12,000 of Rent-N-Co (beta = 1.75) and $5,000 of Lincoln Corporation (beta = 0.50). What is the beta of your portfolio?

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

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

Which of the following is incorrect?

Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. By how much does Stock A's risk premium exceed the risk premium of Stock B?

Which of the following statements is incorrect?

Consider an asset that provides the same return no matter what economic state occurs. What would be the standard deviation of this asset?

A company's current stock price is $84.50 and it is likely to pay a $3.50 dividend next year. Since analysts estimate the company will have a 10 percent growth rate, what is its expected 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?

Stock A has a required return of 12 percent. Stock B has a required return of 15 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?

Which of the following is the reward investors require for taking risk?

A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return?

Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?

Which of these is a measure of the sensitivity of a stock or portfolio to market risk?

Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0)1 50% Slow Growth 0)6 8% Recession 0)3 -10%

You own $9,000 of Olympic Steel stock that has a beta of 2.5. You also own $7,000 of Rent-a-Center (beta = 1.2) and $8,000 of Lincoln Educational (beta = 0.4). What is the beta of your portfolio?

Compute the expected return given these three economic states, their likelihoods, and the potential returns:

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

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?

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?

Which of the following is correct?

You own $8,000 of City Steel stock that has a beta of 2.1. You also own $12,000 of Rent-N-Co (beta = 1.75) and $5,000 of Lincoln Corporation (beta = 0.50). What is the beta of your portfolio?

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

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