Question 1

In theory,which of these is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate?

Accepted Answer

A) Efficient market 
B) Market portfolio 
C) Probability distribution 
D) Stock market bubble 
A) Efficient market 
B) Market portfolio 
C) Probability distribution 
D) Stock market bubble

Question 2

Estee Lauder's upcoming dividend is expected to be $0.65 and its stock is selling at $45.The firm has a beta of 1.1 and is expected to grow at 10 percent for the foreseeable future.Compute Estee Lauder's required return using both CAPM and the constant growth model.Assume that the market portfolio will earn 11 percent and the risk-free rate is 4 percent.

Accepted Answer

A) CAPM: 11.2 percent; Constant Growth Model: 10.97 percent 
B) CAPM: 11.7 percent; Constant Growth Model: 11.44 percent 
C) CAPM: 10.1 percent; Constant Growth Model: 11.46 percent 
D) CAPM: 9.2 percent; Constant Growth Model: 9.56 percent 
A) CAPM: 11.2 percent; Constant Growth Model: 10.97 percent 
B) CAPM: 11.7 percent; Constant Growth Model: 11.44 percent 
C) CAPM: 10.1 percent; Constant Growth Model: 11.46 percent 
D) CAPM: 9.2 percent; Constant Growth Model: 9.56 percent

Question 3

Hastings Entertainment has a beta of 1.24.If the market return is expected to be 10 percent and the risk-free rate is 4 percent,what is Hastings' required return?

Accepted Answer

A) 11.44 percent 
B) 12.44 percent 
C) 14.96 percent 
D) 16.40 percent 
A) 11.44 percent 
B) 12.44 percent 
C) 14.96 percent 
D) 16.40 percent

Question 4

Explain the risk premiums of stock.

Accepted Answer

The risk premium of the stock market its

Question 5

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?

Accepted Answer

A) This is an example of a market overreaction. 
B) This is an example of a market underreaction. 
C) This is an example of a semi-strong efficient market. 
D) None of these statements is correct. 
A) This is an example of a market overreaction. 
B) This is an example of a market underreaction. 
C) This is an example of a semi-strong efficient market. 
D) None of these statements is correct.

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) 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 7

Shares of stock issued to employees that have limitations on when they can be sold 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 8

Stock Market Bubble If the Japanese stock market bubble peaked at 37,500,and two and a half years later it had fallen to 25,900,what was the percentage decline?

Accepted Answer

A) -10.31 percent 
B) -27.63 percent 
C) -30.93 percent 
D) -69.07 percent 
A) -10.31 percent 
B) -27.63 percent 
C) -30.93 percent 
D) -69.07 percent

Question 9

Under/Over-Valued Stock A manager believes his firm will earn a 16 percent return next year.His firm has a beta of 1.5,the expected return on the market is 14 percent,and the risk-free rate is 4 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) 19 percent, undervalued 
B) 19 percent, overvalued 
C) 22 percent, undervalued 
D) 22 percent, overvalued 
A) 19 percent, undervalued 
B) 19 percent, overvalued 
C) 22 percent, undervalued 
D) 22 percent, overvalued

Question 10

Stock Market Bubble If the NASDAQ stock market bubble peaked at 3,750,and two and a half years later it had fallen to 2,200,what would be the percentage decline?

Accepted Answer

A) -15.87 percent 
B) -17.05 percent 
C) -41.33 percent 
D) -58.67 percent 
A) -15.87 percent 
B) -17.05 percent 
C) -41.33 percent 
D) -58.67 percent

Question 11

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 statements 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 statements are correct.

Question 12

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 falls resulting in a net increase of only $4.Given this information which of the following statements is correct?

Accepted Answer

A) This is an example of a market overreaction. 
B) This is an example of a market underreaction. 
C) This is an example of a semi-strong efficient market. 
D) None of these statements is correct. 
A) This is an example of a market overreaction. 
B) This is an example of a market underreaction. 
C) This is an example of a semi-strong efficient market. 
D) None of these statements is correct.

Question 13

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 14

You obtain beta estimates of General Electric from two different online sources and you are surprised to find that they are so different.Which of the following would not be a correct explanation for the difference?

Accepted Answer

A) One source used weekly data and another used monthly data. 
B) One source used the S&P 500 for a market proxy and the other used the Dow Jones Industrial Average. 
C) One used regression analysis and the other used geometric analysis. 
D) All of these are correct explanations for the difference. 
A) One source used weekly data and another used monthly data. 
B) One source used the S&P 500 for a market proxy and the other used the Dow Jones Industrial Average. 
C) One used regression analysis and the other used geometric analysis. 
D) All of these are correct explanations for the difference.

Question 15

Expected Return A company's current stock price is $22.00 and its most recent dividend was $0.75 per share.Since analysts estimate the company will have a 12 percent growth rate,what is its expected return?

Accepted Answer

A) 3.00 percent 
B) 3.48 percent 
C) 12.00 percent 
D) 15.82 percent 
A) 3.00 percent 
B) 3.48 percent 
C) 12.00 percent 
D) 15.82 percent

Question 16

Which of the following is a model that includes an equation that relates a stock's required return to an appropriate risk premium?

Accepted Answer

A) Asset pricing 
B) Behavioral finance 
C) Beta 
D) Efficient markets 
A) Asset pricing 
B) Behavioral finance 
C) Beta 
D) Efficient markets

Question 17

Which of the following statements is correct?

Accepted Answer

A) Penny stocks are the stocks of small companies that are priced below $1 per share. 
B) Restricted stocks are shares of stock issued to executives that have limitations on voting rights. 
C) The Capital Market Line graphs the relationship between return and risk (beta). 
D) All of these statements are correct. 
A) Penny stocks are the stocks of small companies that are priced below $1 per share. 
B) Restricted stocks are shares of stock issued to executives that have limitations on voting rights. 
C) The Capital Market Line graphs the relationship between return and risk (beta). 
D) All of these statements are correct.

Question 18

Which of the following is incorrect?

Accepted Answer

A) Most firms would want to sell additional shares of common stock if they feel their stock is undervalued. 
B) Most firms would not want to repurchase shares of common stock if they feel their stock is overvalued. 
C) It is important for financial managers to understand market efficiency because it helps them understand how their stock prices will react to different types of decisions and news announcements. 
D) None of these statements is incorrect. 
A) Most firms would want to sell additional shares of common stock if they feel their stock is undervalued. 
B) Most firms would not want to repurchase shares of common stock if they feel their stock is overvalued. 
C) It is important for financial managers to understand market efficiency because it helps them understand how their stock prices will react to different types of decisions and news announcements. 
D) None of these statements is incorrect.

Question 19

Which of these is the measurement of risk for a collection of stocks for an investor?

Accepted Answer

A) Beta 
B) Efficient market 
C) Expected return 
D) Portfolio beta 
A) Beta 
B) Efficient market 
C) Expected return 
D) Portfolio beta

Question 20

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

Accepted Answer

A) 6.71 percent 
B) 22.5 percent 
C) 23.37 percent 
D) 52.20 percent 
A) 6.71 percent 
B) 22.5 percent 
C) 23.37 percent 
D) 52.20 percent

In theory,which of these is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate?

Hastings Entertainment has a beta of 1.24.If the market return is expected to be 10 percent and the risk-free rate is 4 percent,what is Hastings' required return?

Explain the risk premiums of stock.

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

Shares of stock issued to employees that have limitations on when they can be sold are known as:

Stock Market Bubble If the Japanese stock market bubble peaked at 37,500,and two and a half years later it had fallen to 25,900,what was the percentage decline?

Stock Market Bubble If the NASDAQ stock market bubble peaked at 3,750,and two and a half years later it had fallen to 2,200,what would be the percentage decline?

Which of the following is correct?

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?

You obtain beta estimates of General Electric from two different online sources and you are surprised to find that they are so different.Which of the following would not be a correct explanation for the difference?

Expected Return A company's current stock price is $22.00 and its most recent dividend was $0.75 per share.Since analysts estimate the company will have a 12 percent growth rate,what is its expected return?

Which of the following is a model that includes an equation that relates a stock's required return to an appropriate risk premium?

Which of the following statements is correct?

Which of the following is incorrect?

Which of these is the measurement of risk for a collection of stocks for an investor?

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

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

In theory,which of these is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate?

Hastings Entertainment has a beta of 1.24.If the market return is expected to be 10 percent and the risk-free rate is 4 percent,what is Hastings' required return?

Explain the risk premiums of stock.

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

Shares of stock issued to employees that have limitations on when they can be sold are known as:

Stock Market Bubble If the Japanese stock market bubble peaked at 37,500,and two and a half years later it had fallen to 25,900,what was the percentage decline?

Stock Market Bubble If the NASDAQ stock market bubble peaked at 3,750,and two and a half years later it had fallen to 2,200,what would be the percentage decline?

Which of the following is correct?

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?

You obtain beta estimates of General Electric from two different online sources and you are surprised to find that they are so different.Which of the following would not be a correct explanation for the difference?

Expected Return A company's current stock price is $22.00 and its most recent dividend was $0.75 per share.Since analysts estimate the company will have a 12 percent growth rate,what is its expected return?

Which of the following is a model that includes an equation that relates a stock's required return to an appropriate risk premium?

Which of the following statements is correct?

Which of the following is incorrect?

Which of these is the measurement of risk for a collection of stocks for an investor?

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

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