Question 1

Which statement is correct?

Accepted Answer

A)  the superior performance of value stocks is exactly what the CAPM would predict. 
B)  the CAPM predicts that investors are concerned only with the risk that cannot be diversified away. 
C)  few financial managers in practice use the CAPM to estimate the cost of capital. 
D)  the CAPM is a model of actual returns whereas the cost of capital is concerned with expected returns. 
A)  the superior performance of value stocks is exactly what the CAPM would predict. 
B)  the CAPM predicts that investors are concerned only with the risk that cannot be diversified away. 
C)  few financial managers in practice use the CAPM to estimate the cost of capital. 
D)  the CAPM is a model of actual returns whereas the cost of capital is concerned with expected returns.

Question 2

A project has a beta of 0.97,the risk-free rate is 4.1%,and the market risk premium is 8.1%.What is the project's expected rate of return?

Accepted Answer

A)  7.98% 
B)  11.96% 
C)  8.35% 
D)  11.83% 
A)  7.98% 
B)  11.96% 
C)  8.35% 
D)  11.83%

Question 3

Estimate a stock's beta based on the following information: Month 1 = Stock + 1.5%,Market + 1.1%; Month 2 = Stock + 2.0%,Market + 1.4%; Month 3 = Stock − 2.5%,Market − 2.0%.

Accepted Answer

A)  Greater than 1.0 
B)  Less than 1.0 
C)  Equal to 1.0 
D)  Indeterminate 
A)  Greater than 1.0 
B)  Less than 1.0 
C)  Equal to 1.0 
D)  Indeterminate

Question 4

Which one of the following statements is correct when Treasury bills yield 7.5% and the market risk premium is 9.5%?

Accepted Answer

A)  The S&P 500 would be expected to return 8.50%. 
B)  The S&P 500 would be expected to return 9.50%. 
C)  The S&P 500 would be expected to return 12.68%. 
D)  The S&P 500 would be expected to return 17.00%. 
A)  The S&P 500 would be expected to return 8.50%. 
B)  The S&P 500 would be expected to return 9.50%. 
C)  The S&P 500 would be expected to return 12.68%. 
D)  The S&P 500 would be expected to return 17.00%.

Question 5

The project cost of capital is:

Accepted Answer

A)  equal to the company cost of capital. 
B)  less than the company cost of capital. 
C)  greater than the company cost of capital because the project has specific risk. 
D)  not necessarily related to the company cost of capital. 
A)  equal to the company cost of capital. 
B)  less than the company cost of capital. 
C)  greater than the company cost of capital because the project has specific risk. 
D)  not necessarily related to the company cost of capital.

Question 6

What is the beta of a security with an expected return of 12% if Treasury bills yield 6% and the market risk premium is 8%?

Accepted Answer

A)  0.50 
B)  0.75 
C)  0.90 
D)  1.50 
A)  0.50 
B)  0.75 
C)  0.90 
D)  1.50

Which statement is correct?

A project has a beta of 0.97,the risk-free rate is 4.1%,and the market risk premium is 8.1%.What is the project's expected rate of return?

Estimate a stock's beta based on the following information: Month 1 = Stock + 1.5%,Market + 1.1%; Month 2 = Stock + 2.0%,Market + 1.4%; Month 3 = Stock − 2.5%,Market − 2.0%.

Which one of the following statements is correct when Treasury bills yield 7.5% and the market risk premium is 9.5%?

The project cost of capital is:

What is the beta of a security with an expected return of 12% if Treasury bills yield 6% and the market risk premium is 8%?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

Filters

Exam 12: Risk,Return,and Capital Budgeting

Which statement is correct?

A project has a beta of 0.97,the risk-free rate is 4.1%,and the market risk premium is 8.1%.What is the project's expected rate of return?

Estimate a stock's beta based on the following information: Month 1 = Stock + 1.5%,Market + 1.1%; Month 2 = Stock + 2.0%,Market + 1.4%; Month 3 = Stock − 2.5%,Market − 2.0%.

Which one of the following statements is correct when Treasury bills yield 7.5% and the market risk premium is 9.5%?

The project cost of capital is:

What is the beta of a security with an expected return of 12% if Treasury bills yield 6% and the market risk premium is 8%?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

Filters