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 statements is incorrect. 
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 statements is incorrect.

Question 2

Which of the following is typically considered the return on U.S.government bonds and bills and equals the real interest plus the expected inflation premium?

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 3

Under/Over-Valued Stock A manager believes his firm will earn a 7.5 percent return next year.His firm has a beta of 2,the expected return on the market is 5 percent,and the risk-free rate is 2 percent.Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is undervalued or overvalued.

Accepted Answer

A) 8 percent, undervalued 
B) 8 percent, overvalued 
C) 12 percent, undervalued 
D) 12 percent, overvalued 
A) 8 percent, undervalued 
B) 8 percent, overvalued 
C) 12 percent, undervalued 
D) 12 percent, overvalued

Question 4

You hold the positions in the following table.What is the beta of your portfolio? If you expect the market to earn 10 percent and the risk-free rate is 4 percent,what is the required return of the portfolio?

Accepted Answer

A) 12.37 percent 
B) 9.73 percent 
C) 10.17 percent 
D) 11.68 percent 
A) 12.37 percent 
B) 9.73 percent 
C) 10.17 percent 
D) 11.68 percent

Question 5

A manager believes his firm will earn an 18 percent return next year.His firm has a beta of 1.75,the expected return on the market is 13 percent,and the risk-free rate is 5 percent.Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.

Accepted Answer

A) 19 percent; overvalued 
B) 19 percent; undervalued 
C) 16.7 percent; overvalued 
D) 16.7 percent; undervalued 
A) 19 percent; overvalued 
B) 19 percent; undervalued 
C) 16.7 percent; overvalued 
D) 16.7 percent; undervalued

Question 6

Expected Return Risk Compute the standard deviation of the expected return given these three economic states,their likelihoods,and the potential returns:

Accepted Answer

A) 8.4 percent 
B) 10.87 percent 
C) 11.34 percent 
D) 24.09 percent 
A) 8.4 percent 
B) 10.87 percent 
C) 11.34 percent 
D) 24.09 percent

Question 7

The constant growth model assumes which of the following?

Accepted Answer

A) That there is privately held information 
B) That the stock is efficiently priced 
C) That there are executive stock options available to managers 
D) That there is no restricted stock 
A) That there is privately held information 
B) That the stock is efficiently priced 
C) That there are executive stock options available to managers 
D) That there is no restricted stock

Question 8

What is required to use the constant-growth model to compute required return?

Accepted Answer

This model requires only the c

Question 9

How can one account for movements in the economy when evaluating a firm's stock return performance?

Accepted Answer

A firm's stock performance relates close

Question 10

Explain the security market line's equation.

Accepted Answer

The security market line's equation is k

Question 11

Portfolio Beta You have a portfolio with a beta of 1.25.What will be the new portfolio beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a beta of 1.75?

Accepted Answer

A) 1.00 
B) 1.35 
C) 1.50 
D) 3.00 
A) 1.00 
B) 1.35 
C) 1.50 
D) 3.00

Question 12

Which of the following is NOT a necessary condition for an efficient market?

Accepted Answer

A) Many buyers and sellers 
B) No prohibitively high barriers to entry 
C) Free and readily available information available to all participants 
D) No trading or transaction costs 
A) Many buyers and sellers 
B) No prohibitively high barriers to entry 
C) Free and readily available information available to all participants 
D) No trading or transaction costs

Question 13

Special rights given to some employees to buy a specific number of shares of the company stock at a fixed price during a specific period of time are known as:

Accepted Answer

A) executive stock options. 
B) privately held information. 
C) restricted stock. 
D) stock market bubble. 
A) executive stock options. 
B) privately held information. 
C) restricted stock. 
D) stock market bubble.

Question 14

Which of these is the reward for taking systematic stock market 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 15

Company Risk Premium A company has a beta of 4.5.If the market return is expected to be 14 percent and the risk-free rate is 7 percent,what is the company's risk premium?

Accepted Answer

A) 7.0 percent 
B) 25.5 percent 
C) 31.5 percent 
D) 38.5 percent 
A) 7.0 percent 
B) 25.5 percent 
C) 31.5 percent 
D) 38.5 percent

Question 16

Required Return If the risk-free rate is 10 percent and the market risk premium is 4 percent,what is the required return for the market?

Accepted Answer

A) 4 percent 
B) 7 percent 
C) 10 percent 
D) 14 percent 
A) 4 percent 
B) 7 percent 
C) 10 percent 
D) 14 percent

Question 17

Contrast computing beta for riskless securities versus stocks.

Accepted Answer

A riskless security-such as a U.S.Treasu

Question 18

Which of these is the set of probabilities for all possible occurrences?

Accepted Answer

A) Probability 
B) Probability distribution 
C) Stock market bubble 
D) Market probabilities 
A) Probability 
B) Probability distribution 
C) Stock market bubble 
D) Market probabilities

Question 19

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 20

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

Which of the following is incorrect?

Which of the following is typically considered the return on U.S.government bonds and bills and equals the real interest plus the expected inflation premium?

You hold the positions in the following table.What is the beta of your portfolio? If you expect the market to earn 10 percent and the risk-free rate is 4 percent,what is the required return of the portfolio?

Expected Return Risk Compute the standard deviation of the expected return given these three economic states,their likelihoods,and the potential returns:

The constant growth model assumes which of the following?

What is required to use the constant-growth model to compute required return?

How can one account for movements in the economy when evaluating a firm's stock return performance?

Explain the security market line's equation.

Portfolio Beta You have a portfolio with a beta of 1.25.What will be the new portfolio beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a beta of 1.75?

Which of the following is NOT a necessary condition for an efficient market?

Special rights given to some employees to buy a specific number of shares of the company stock at a fixed price during a specific period of time are known as:

Which of these is the reward for taking systematic stock market risk?

Company Risk Premium A company has a beta of 4.5.If the market return is expected to be 14 percent and the risk-free rate is 7 percent,what is the company's risk premium?

Required Return If the risk-free rate is 10 percent and the market risk premium is 4 percent,what is the required return for the market?

Contrast computing beta for riskless securities versus stocks.

Which of these is the set of probabilities for all possible occurrences?

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?

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

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

Which of the following is incorrect?

Which of the following is typically considered the return on U.S.government bonds and bills and equals the real interest plus the expected inflation premium?

You hold the positions in the following table.What is the beta of your portfolio? If you expect the market to earn 10 percent and the risk-free rate is 4 percent,what is the required return of the portfolio?

Expected Return Risk Compute the standard deviation of the expected return given these three economic states,their likelihoods,and the potential returns:

The constant growth model assumes which of the following?

What is required to use the constant-growth model to compute required return?

How can one account for movements in the economy when evaluating a firm's stock return performance?

Explain the security market line's equation.

Portfolio Beta You have a portfolio with a beta of 1.25.What will be the new portfolio beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a beta of 1.75?

Which of the following is NOT a necessary condition for an efficient market?

Special rights given to some employees to buy a specific number of shares of the company stock at a fixed price during a specific period of time are known as:

Which of these is the reward for taking systematic stock market risk?

Company Risk Premium A company has a beta of 4.5.If the market return is expected to be 14 percent and the risk-free rate is 7 percent,what is the company's risk premium?

Required Return If the risk-free rate is 10 percent and the market risk premium is 4 percent,what is the required return for the market?

Contrast computing beta for riskless securities versus stocks.

Which of these is the set of probabilities for all possible occurrences?

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?

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

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