Question 1

What must financial managers understand when analyzing new business opportunities?

Accepted Answer

Financial managers in particul

Question 2

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

Accepted Answer

A) Audited financial statements 
B) Restricted stock 
C) Privately held information 
D) Insider trading 
A) Audited financial statements 
B) Restricted stock 
C) Privately held information 
D) Insider trading

Question 3

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?

Accepted Answer

A) 8.2 percent 
B) 7.8 percent 
C) 8.8 percent 
D) 9.8 percent 
A) 8.2 percent 
B) 7.8 percent 
C) 8.8 percent 
D) 9.8 percent

Question 4

Which of the following is a concern regarding beta?

Accepted Answer

A) Using different market proxies will result in different estimates of beta. 
B) A company can alter its risk level which may make the beta estimate obsolete. 
C) Research indicates that a company's beta does not appear to predict its future return very well. 
D) All of these statements are valid concerns regarding beta. 
A) Using different market proxies will result in different estimates of beta. 
B) A company can alter its risk level which may make the beta estimate obsolete. 
C) Research indicates that a company's beta does not appear to predict its future return very well. 
D) All of these statements are valid concerns regarding beta.

Question 5

Describe how adding a risk-free security to modern portfolio theory allows investors to do better than the efficient frontier.

Accepted Answer

The best portfolios investors can hold w

Question 6

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

Accepted Answer

A) The market risk premium for Apple must be larger than the market risk premium of IBM. 
B) If investors become more risk averse, the expected return of Apple will increase more than the expected return on IBM. 
C) Apple's expected rate of return must be three times as large as IBM's. 
D) None of these statements is correct. 
A) The market risk premium for Apple must be larger than the market risk premium of IBM. 
B) If investors become more risk averse, the expected return of Apple will increase more than the expected return on IBM. 
C) Apple's expected rate of return must be three times as large as IBM's. 
D) None of these statements is correct.

Question 7

Portfolio Beta You own $2,000 of City Steel stock that has a beta of 2.5.You also own $8,000 of Rent-N-Co (beta = 1.9)and $4,000 of Lincoln Corporation (beta = 0.25).What is the beta of your portfolio?

Accepted Answer

A) 1.51 
B) 1.55 
C) 4.65 
D) 14.00 
A) 1.51 
B) 1.55 
C) 4.65 
D) 14.00

Question 8

Which of these is a measure of the sensitivity of a stock or portfolio to market risk?

Accepted Answer

A) Behavioral finance 
B) Beta 
C) Efficient market 
D) Hedge 
A) Behavioral finance 
B) Beta 
C) Efficient market 
D) Hedge

Question 9

Expected Return A company's current stock price is $65.40 and it is likely to pay a $2.25 dividend next year.Since analysts estimate the company will have an 11.25 percent growth rate,what is its expected return?

Accepted Answer

A) 3.44 percent 
B) 3.61 percent 
C) 11.25 percent 
D) 14.69 percent 
A) 3.44 percent 
B) 3.61 percent 
C) 11.25 percent 
D) 14.69 percent

Question 10

Netflicks,Inc.has a beta of 3.61.If the market return is expected to be 13.2 percent and the risk-free rate is 7 percent,what is Netflicks' risk premium?

Accepted Answer

A) 20.91 percent 
B) 22.38 percent 
C) 25.72 percent 
D) 29.38 percent 
A) 20.91 percent 
B) 22.38 percent 
C) 25.72 percent 
D) 29.38 percent

Question 11

Risk Premium The annual return on the S&P 500 Index was 12.4 percent.The annual T-bill yield during the same period was 5.7 percent.What was the market risk premium during that year?

Accepted Answer

A) 5.7 percent 
B) 6.7 percent 
C) 12.4 percent 
D) 18.1 percent 
A) 5.7 percent 
B) 6.7 percent 
C) 12.4 percent 
D) 18.1 percent

Question 12

Which of the following is the asset pricing theory based on a beta,a measure of market risk?

Accepted Answer

A) Behavioral asset pricing model 
B) Capital asset pricing model 
C) Efficient markets asset pricing model 
D) Efficient market hypothesis 
A) Behavioral asset pricing model 
B) Capital asset pricing model 
C) Efficient markets asset pricing model 
D) Efficient market hypothesis

Question 13

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.

Accepted Answer

A) CAPM: 8.6 percent; Constant Growth Model: 13.46 percent 
B) CAPM: 9.7 percent; Constant Growth Model: 12.56 percent 
C) CAPM: 10.1 percent; Constant Growth Model: 11.46 percent 
D) CAPM: 8.2 percent; Constant Growth Model: 9.56 percent 
A) CAPM: 8.6 percent; Constant Growth Model: 13.46 percent 
B) CAPM: 9.7 percent; Constant Growth Model: 12.56 percent 
C) CAPM: 10.1 percent; Constant Growth Model: 11.46 percent 
D) CAPM: 8.2 percent; Constant Growth Model: 9.56 percent

What must financial managers understand when analyzing new business opportunities?

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

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?

Which of the following is a concern regarding beta?

Describe how adding a risk-free security to modern portfolio theory allows investors to do better than the efficient frontier.

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

Portfolio Beta You own $2,000 of City Steel stock that has a beta of 2.5.You also own $8,000 of Rent-N-Co (beta = 1.9)and $4,000 of Lincoln Corporation (beta = 0.25).What is the beta of your portfolio?

Which of these is a measure of the sensitivity of a stock or portfolio to market risk?

Expected Return A company's current stock price is $65.40 and it is likely to pay a $2.25 dividend next year.Since analysts estimate the company will have an 11.25 percent growth rate,what is its expected return?

Netflicks,Inc.has a beta of 3.61.If the market return is expected to be 13.2 percent and the risk-free rate is 7 percent,what is Netflicks' risk premium?

Risk Premium The annual return on the S&P 500 Index was 12.4 percent.The annual T-bill yield during the same period was 5.7 percent.What was the market risk premium during that year?

Which of the following is the asset pricing theory based on a beta,a measure of market 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

What must financial managers understand when analyzing new business opportunities?

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

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?

Which of the following is a concern regarding beta?

Describe how adding a risk-free security to modern portfolio theory allows investors to do better than the efficient frontier.

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

Portfolio Beta You own $2,000 of City Steel stock that has a beta of 2.5.You also own $8,000 of Rent-N-Co (beta = 1.9)and $4,000 of Lincoln Corporation (beta = 0.25).What is the beta of your portfolio?

Which of these is a measure of the sensitivity of a stock or portfolio to market risk?

Expected Return A company's current stock price is $65.40 and it is likely to pay a $2.25 dividend next year.Since analysts estimate the company will have an 11.25 percent growth rate,what is its expected return?

Netflicks,Inc.has a beta of 3.61.If the market return is expected to be 13.2 percent and the risk-free rate is 7 percent,what is Netflicks' risk premium?

Risk Premium The annual return on the S&P 500 Index was 12.4 percent.The annual T-bill yield during the same period was 5.7 percent.What was the market risk premium during that year?

Which of the following is the asset pricing theory based on a beta,a measure of market 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