Question 1

The study of the cognitive processes and biases associated with making financial and economic decisions is known as:

Accepted Answer

A) efficient thinking hypothesis. 
B) financial cognition. 
C) financial leverage. 
D) behavioral finance. 
A) efficient thinking hypothesis. 
B) financial cognition. 
C) financial leverage. 
D) behavioral finance. D

Question 2

You have a portfolio with a beta of 3.1.What will be the new portfolio beta if you keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 4.5?

Accepted Answer

A) 3.31 
B) 3.51 
C) 3.61 
D) 3.71 
A) 3.31 
B) 3.51 
C) 3.61 
D) 3.71 A

Question 3

Expected Return and Risk Compute the standard deviation given these four economic states,their likelihoods,and the potential returns:

Accepted Answer

A) 12.19 percent 
B) 23.8 percent 
C) 38.65 percent 
D) 88.06 percent 
A) 12.19 percent 
B) 23.8 percent 
C) 38.65 percent 
D) 88.06 percent C

Question 4

Which of these is similar to the Capital Market Line,except that risk is characterized by beta instead of standard deviation?

Accepted Answer

A) Market risk line 
B) Probability market line 
C) Security market line 
D) Stock market line 
A) Market risk line 
B) Probability market line 
C) Security market line 
D) Stock market line

Question 5

Risk Premiums 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?

Accepted Answer

A) 11.645 percent 
B) 20.55 percent 
C) 23.905 percent 
D) 38.00 percent 
A) 11.645 percent 
B) 20.55 percent 
C) 23.905 percent 
D) 38.00 percent

Question 6

Portfolio Beta You own $1,000 of City Steel stock that has a beta of 1.5.You also own $5,000 of Rent-N-Co (beta = 1.8)and $4,000 of Lincoln Corporation (beta = 0.9).What is the beta of your portfolio?

Accepted Answer

A) 1.4 
B) 1.5 
C) 4.2 
D) 4.65 
A) 1.4 
B) 1.5 
C) 4.2 
D) 4.65

Question 7

Which of these is a theory that describes the types of information that are reflected in current stock prices?

Accepted Answer

A) Asset pricing 
B) Behavioral finance 
C) Efficient market hypothesis 
D) Public information 
A) Asset pricing 
B) Behavioral finance 
C) Efficient market hypothesis 
D) Public information

Question 8

Risk Premiums 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?

Accepted Answer

A) 11.05 percent 
B) 16.50 percent 
C) 17.00 percent 
D) 24.70 percent 
A) 11.05 percent 
B) 16.50 percent 
C) 17.00 percent 
D) 24.70 percent

Question 9

Which of the following is the average of the possible returns weighted by the likelihood of those returns occurring?

Accepted Answer

A) Efficient return 
B) Expected return 
C) Market return 
D) Required return 
A) Efficient return 
B) Expected return 
C) Market return 
D) Required return

Question 10

Expected Return and Risk Compute the standard deviation given these four economic states,their likelihoods,and the potential returns:

Accepted Answer

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

Question 11

You have a portfolio consisting of 20 percent Boeing (beta = 1.3)and 40 percent Hewlett-Packard (beta = 1.6)and 40 percent McDonald's stock (beta = 0.7).How much market risk does the portfolio have?

Accepted Answer

A) This portfolio has 18 percent less risk than the general market. 
B) This portfolio has 28 percent more risk than the general market. 
C) This portfolio has 18 percent more risk than the general market. 
D) This portfolio has 28 percent less risk than the general market. 
A) This portfolio has 18 percent less risk than the general market. 
B) This portfolio has 28 percent more risk than the general market. 
C) This portfolio has 18 percent more risk than the general market. 
D) This portfolio has 28 percent less risk than the general market.

Question 12

CAPM Required Return A company has a beta of 3.75.If the market return is expected to be 20 percent and the risk-free rate is 9.5 percent,what is the company's required return?

Accepted Answer

A) 33.250 percent 
B) 39.375 percent 
C) 48.875 percent 
D) 55.625 percent 
A) 33.250 percent 
B) 39.375 percent 
C) 48.875 percent 
D) 55.625 percent

Question 13

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

Accepted Answer

A) Audited financial statements 
B) Generally accepted accounting principles 
C) Privately held information 
D) Public information 
A) Audited financial statements 
B) Generally accepted accounting principles 
C) Privately held information 
D) Public information

Question 14

The constant growth model requires what information for computing shareholders' required return?

Accepted Answer

1.Current stock price
2.An est

Question 15

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 16

Required Return Using the information in the table,compute the required return for each company using both CAPM and the constant growth model.Compare and discuss the results.Assume that the market portfolio will earn 11 percent and the risk-free rate is 2.5 percent.

Accepted Answer

First use CAPM to determine each firm's

Question 17

Compute the expected return and standard deviation given these four economic states,their likelihoods,and the potential returns:

Accepted Answer

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

Question 18

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 statements is correct. 
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 statements is correct.

Question 19

Which of the following is most correct?

Accepted Answer

A) In an efficient market, investors will buy overvalued stock which will drive its price down. 
B) In an efficient market, investors will sell undervalued stock which will drive its price down. 
C) In an efficient market, investors will sell overvalued stock which will drive its price down. 
D) None of these statements is correct. 
A) In an efficient market, investors will buy overvalued stock which will drive its price down. 
B) In an efficient market, investors will sell undervalued stock which will drive its price down. 
C) In an efficient market, investors will sell overvalued stock which will drive its price down. 
D) None of these statements is correct.

Question 20

Which of the following is the use of debt to increase an investment position?

Accepted Answer

A) Behavioral finance 
B) Financial leverage 
C) Probability 
D) Stock market bubble 
A) Behavioral finance 
B) Financial leverage 
C) Probability 
D) Stock market bubble

The study of the cognitive processes and biases associated with making financial and economic decisions is known as:

You have a portfolio with a beta of 3.1.What will be the new portfolio beta if you keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 4.5?

Expected Return and Risk Compute the standard deviation given these four economic states,their likelihoods,and the potential returns:

Which of these is similar to the Capital Market Line,except that risk is characterized by beta instead of standard deviation?

Risk Premiums 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?

Portfolio Beta You own $1,000 of City Steel stock that has a beta of 1.5.You also own $5,000 of Rent-N-Co (beta = 1.8)and $4,000 of Lincoln Corporation (beta = 0.9).What is the beta of your portfolio?

Which of these is a theory that describes the types of information that are reflected in current stock prices?

Which of the following is the average of the possible returns weighted by the likelihood of those returns occurring?

Expected Return and Risk Compute the standard deviation given these four economic states,their likelihoods,and the potential returns:

You have a portfolio consisting of 20 percent Boeing (beta = 1.3)and 40 percent Hewlett-Packard (beta = 1.6)and 40 percent McDonald's stock (beta = 0.7).How much market risk does the portfolio have?

CAPM Required Return A company has a beta of 3.75.If the market return is expected to be 20 percent and the risk-free rate is 9.5 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.?

The constant growth model requires what information for computing shareholders' required return?

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?

Required Return Using the information in the table,compute the required return for each company using both CAPM and the constant growth model.Compare and discuss the results.Assume that the market portfolio will earn 11 percent and the risk-free rate is 2.5 percent.

Compute the expected return and standard deviation given these four economic states,their likelihoods,and the potential returns:

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

Which of the following is most correct?

Which of the following is the use of debt to increase an investment position?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

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 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

The study of the cognitive processes and biases associated with making financial and economic decisions is known as:

You have a portfolio with a beta of 3.1.What will be the new portfolio beta if you keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 4.5?

Expected Return and Risk Compute the standard deviation given these four economic states,their likelihoods,and the potential returns:

Which of these is similar to the Capital Market Line,except that risk is characterized by beta instead of standard deviation?

Risk Premiums 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?

Portfolio Beta You own $1,000 of City Steel stock that has a beta of 1.5.You also own $5,000 of Rent-N-Co (beta = 1.8)and $4,000 of Lincoln Corporation (beta = 0.9).What is the beta of your portfolio?

Which of these is a theory that describes the types of information that are reflected in current stock prices?

Which of the following is the average of the possible returns weighted by the likelihood of those returns occurring?

Expected Return and Risk Compute the standard deviation given these four economic states,their likelihoods,and the potential returns:

You have a portfolio consisting of 20 percent Boeing (beta = 1.3)and 40 percent Hewlett-Packard (beta = 1.6)and 40 percent McDonald's stock (beta = 0.7).How much market risk does the portfolio have?

CAPM Required Return A company has a beta of 3.75.If the market return is expected to be 20 percent and the risk-free rate is 9.5 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.?

The constant growth model requires what information for computing shareholders' required return?

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?

Required Return Using the information in the table,compute the required return for each company using both CAPM and the constant growth model.Compare and discuss the results.Assume that the market portfolio will earn 11 percent and the risk-free rate is 2.5 percent.

Compute the expected return and standard deviation given these four economic states,their likelihoods,and the potential returns:

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

Which of the following is most correct?

Which of the following is the use of debt to increase an investment position?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

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 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