You hold the positions in the following table. What is the beta of your portfolio? If you expect the market to earn 14 percent and the risk-free rate is 5 percent, what is the required return of the portfolio? \[\begin{array} { | l | c | r | c | } \hline & \text { Price } & \text { Shares } & \text { Beta } \\ \hline \text { Website.com } & \$ 20.50 & 100 & 3.2 \\ \hline \text { Budget Stores } & \$ 36.20 & 150 & 1.5 \\ \hline \text { Manufacturing Corp } & \$ 60.70 & 75 & 2.4 \\ \hline \text { Pharmacy Corp } & \$ 28.40 & 200 & 0.75 \\ \hline \end{array}\]

A) 20.21 percent B) 22.66 percent C) 28.66 percent D) 32.48 percent A) 20.21 percent B) 22.66 percent C) 28.66 percent D) 32.48 percent

Compute the expected return and standard deviation given these four economic states, their likelihoods, and the potential returns: \[\begin{array} { | l | l | l | } \hline \begin{array} { l } \text { Economic } \\ \text { State } \end{array} & \text { Probability } & \text { Return } \\ \hline \text { Fast Growth } & 0.20 & 60 \% \\ \hline \text { Slow Growth } & 0.50 & 13 \% \\ \hline \text { Recession } & 0.15 & - 15 \% \\ \hline \text { Depression } & 0.15 & - 45 \% \\ \hline \end{array}\]

A) 9.5 percent; 32.43 percent B) 9.5 percent; 21.96 percent C) 9.5 percent; 18.97 percent D) 9.5 percent; 29.18 percent A) 9.5 percent; 32.43 percent B) 9.5 percent; 21.96 percent C) 9.5 percent; 18.97 percent D) 9.5 percent; 29.18 percent

Compute the expected return given these three economic states, their likelihoods, and the potential returns: \[\begin{array} { | l | c | r | } \hline \begin{array} { l } \text { Economic } \\ \text { State } \end{array} & \text { Probability } & \text { Return } \\ \hline \text { Fast Growth } & 0.1 & 50 \% \\ \hline \text { Slow Growth } & 0.6 & 8 \% \\ \hline \text { Recession } & 0.3 & - 10 \% \\ \hline \end{array}\]

A) 6.8 percent B) 12.8 percent C) 16.0 percent D) 22.7 percent A) 6.8 percent B) 12.8 percent C) 16.0 percent D) 22.7 percent

Compute the standard deviation given these four economic states, their likelihoods, and the potential returns: \[\begin{array} { | l | c | r | } \hline \begin{array} { l } \text { Economic } \\ \text { State } \end{array} & \text { Probability } & \text { Return } \\ \hline \text { Fast Growth } & 0.35 & 40 \% \\ \hline \text { Slow Growth } & 0.45 & 10 \% \\ \hline \text { Recession } & 0.10 & - 10 \% \\ \hline \text { Depression } & 0.10 & - 100 \% \\ \hline \end{array}\]

A) 7.5 percent B) 12.65 percent C) 39.48 percent D) 113.69 percent A) 7.5 percent B) 12.65 percent C) 39.48 percent D) 113.69 percent

Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: \[\begin{array} { | l | c | r | } \hline \begin{array} { l } \text { Economic } \\ \text { State } \end{array} & \text { Probability } & \text { Return } \\ \hline \text { Fast Growth } & 0.1 & 50 \% \\ \hline \text { Slow Growth } & 0.6 & 8 \% \\ \hline \text { Recession } & 0.3 & - 10 \% \\ \hline \end{array}\]

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

Exam 10: Estimating Risk and Return

Praxair's upcoming dividend is expected to be $2.25 and its stock is selling at $65. The firm has a beta of 0.8 and is expected to grow at 10 percent for the foreseeable future. Compute Praxair's required return using both CAPM and the constant growth model. Assume that the market portfolio will earn 10 percent and the risk-free rate is 3 percent.

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

A

Which of these is the line on a graph of return and risk (standard deviation) from the risk-free rate through the market portfolio?

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(Multiple Choice)

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Question 2

Correct Answer:

Verified

B

You own $5,000 of Software Corp's stock that has a beta of 3.75. You also own $10,000 of Home Improvement Corp. (beta = 1.5) and $15,000 of Publishing Corp. (beta = 0.35). Assume that the market return will be 13 percent and the risk-free rate is 4.5 percent. What is the risk premium of the portfolio?

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(Multiple Choice)

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Question 3

Correct Answer:

Verified

A

You hold the positions in the following table. What is the beta of your portfolio? If you expect the market to earn 14 percent and the risk-free rate is 5 percent, what is the required return of the portfolio? Price Shares Beta Website.com \ 20.50 100 3.2 Budget Stores \ 36.20 150 1.5 Manufacturing Corp \ 60.70 75 2.4 Pharmacy Corp \ 28.40 200 0.75

(Multiple Choice)

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Question 4

Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate, what is its required return?

(Multiple Choice)

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Question 5

Which of the following statements is incorrect?

(Multiple Choice)

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Question 6

Compute the expected return and standard deviation given these four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.20 60\% Slow Growth 0.50 13\% Recession 0.15 -15\% Depression 0.15 -45\%

(Multiple Choice)

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Question 7

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?

(Multiple Choice)

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Question 8

Which of the following statements is correct?

(Multiple Choice)

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Question 9

Compute 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\%

(Multiple Choice)

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Question 10

U.S. Bancorp holds a press conference to announce a positive news event that was unexpected to the market. As soon as the announcement is made, the stock price increases $8 per share but then over the next hour the price continues to increase resulting in a total increase of $11. Given this information which of the following statements is correct?

(Multiple Choice)

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Question 11

You own $10,000 of Denny's Corp. stock that has a beta of 3.2. You also own $15,000 of Qwest Communications (beta = 1.9) and $15,000 of Southwest Airlines (beta = 0.4). Assume that the market return will be 13 percent and the risk-free rate is 5.5 percent. What is the risk premium of the portfolio?

(Multiple Choice)

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Question 12

Compute the standard deviation given these four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.35 40\% Slow Growth 0.45 10\% Recession 0.10 -10\% Depression 0.10 -100\%

(Multiple Choice)

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Question 13

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?

(Multiple Choice)

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Question 14

Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.?

(Multiple Choice)

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Question 15

Which of these refers to something that has not been released to the public, but is known by few individuals, likely company insiders?

(Multiple Choice)

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Question 16

You own $14,000 of Diner's Corp. stock that has a beta of 2.1. You also own $14,000 of Comm Corp. (beta = 1.3) and $12,000 of Airlines Corp. (beta = 0.6). Assume that the market return will be 15 percent and the risk-free rate is 6.5 percent. What is the total risk premium of the portfolio?

(Multiple Choice)

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Question 17

The average annual return on the S&P 500 Index from 1986 to 1995 was 17.6 percent. The average annual T-bill yield during the same period was 9.8 percent. What was the market risk premium during these 10 years?

(Multiple Choice)

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Question 18

IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following statements must be correct?

(Multiple Choice)

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Question 19

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\%

(Multiple Choice)

4.7/5

(69)

Question 20

Which of these is the line on a graph of return and risk (standard deviation) from the risk-free rate through the market portfolio?

Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate, what is its required return?

Which of the following statements is incorrect?

Compute the expected return and standard deviation given these four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.20 60\% Slow Growth 0.50 13\% Recession 0.15 -15\% Depression 0.15 -45\%

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?

Which of the following statements is correct?

Compute 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 $10,000 of Denny's Corp. stock that has a beta of 3.2. You also own $15,000 of Qwest Communications (beta = 1.9) and $15,000 of Southwest Airlines (beta = 0.4). Assume that the market return will be 13 percent and the risk-free rate is 5.5 percent. What is the risk premium of the portfolio?

Compute the standard deviation given these four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.35 40\% Slow Growth 0.45 10\% Recession 0.10 -10\% Depression 0.10 -100\%

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?

Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.?

Which of these refers to something that has not been released to the public, but is known by few individuals, likely company insiders?

You own $14,000 of Diner's Corp. stock that has a beta of 2.1. You also own $14,000 of Comm Corp. (beta = 1.3) and $12,000 of Airlines Corp. (beta = 0.6). Assume that the market return will be 15 percent and the risk-free rate is 6.5 percent. What is the total risk premium of the portfolio?

The average annual return on the S&P 500 Index from 1986 to 1995 was 17.6 percent. The average annual T-bill yield during the same period was 9.8 percent. What was the market risk premium during these 10 years?

IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following statements must be correct?

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\%

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

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