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##### Question 1 (Multiple Choice Worth 5 points) Arj...

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Question 1 (Multiple Choice Worth 5 points) Arjay Company has issued perpetual preferred stock with a par of $100 and a dividend of 6.5 percent. If the required rate of return is 8.75 percent, what is the stock?s current market price? $12.90 $74.29 $53.27 $62.14 -------------------------------------------------------------------------------- Question 2 (Multiple Choice Worth 5 points) Normal yield curves are observed when the economy is growing. the economy is stagnant the economy is in recession. None of the above. -------------------------------------------------------------------------------- Question 3 (Multiple Choice Worth 5 points) Which of the following tools would be most appropriate for understanding which of two stocks to invest in a single holding portfolio? the coefficient of variation for each of the two stocks the correlation coefficient between the two stocks the covariance between the two stocks the beta of the two stocks -------------------------------------------------------------------------------- Question 4 (True/False Worth 5 points) Short-term bonds have greater price volatility than long-term bonds. True False -------------------------------------------------------------------------------- Question 5 (True/False Worth 5 points) The expected return of the market portfolio is equal to that of the risk-free risk security. True False -------------------------------------------------------------------------------- Question 6 (True/False Worth 5 points) Bonds with a call provision sell at lower market yields than comparable noncallable bonds. True False -------------------------------------------------------------------------------- Question 7 (True/False Worth 5 points) Owners of common stock are not guaranteed any dividend payments and have the lowest-priority claim on the firm?s assets in the event of bankruptcy. True False -------------------------------------------------------------------------------- Question 8 (True/False Worth 5 points) Preferred stock owners are given priority treatment over common stock with respect to dividend payments and the claims against the firm?s assets in the event of bankruptcy or liquidation. True False -------------------------------------------------------------------------------- Question 9 (True/False Worth 5 points) Operational efficiency relates to bringing buyers and sellers together at the lowest possible cost. True False -------------------------------------------------------------------------------- Question 10 (Multiple Choice Worth 5 points) Stover Electricals is a company with no growth potential. Its last dividend was $3.75, and it expects no change in future dividends. What is the current price of the company?s stock given a discount rate of 12 percent? $40.50 $31.25 $37.50 $45.00 -------------------------------------------------------------------------------- Question 11 (True/False Worth 5 points) The advantage of a dealer over a brokered market is that brokers cannot guarantee that an order will be executed promptly, while dealers can because they have an inventory of securities. True False -------------------------------------------------------------------------------- Question 12 (True/False Worth 5 points) Expected return is the average of the possible returns from an investment, where each return is weighted by the probability that it will occur. True False -------------------------------------------------------------------------------- Question 13 (True/False Worth 5 points) The sale of common stock of small private companies and private placement transactions are good examples of brokered markets. True False -------------------------------------------------------------------------------- Question 14 (Multiple Choice Worth 5 points) When looking at the graph of the Security Market Line, what is the interpretation of where the line crosses the return axis (y-axis)? The Security Market Line crosses the return axis at the expected rate of return for the market. The Security Market Line crosses the return axis at the risk-free rate of return. The Security Market Line crosses the return axis at the expected rate of return for the stock in question. The Security Market Line crosses the return axis at the market risk premium. -------------------------------------------------------------------------------- Question 15 (Multiple Choice Worth 5 points) Gemstone, Inc., paid a dividend of $2.00 last year. It expects to increase its dividend by $0.40 in each of their next four years. If its required rate of return is 15 percent, what is the present value of its dividends over the next four years? $12.00 $8.37 $12.50 $10.40 -------------------------------------------------------------------------------- Question 16 (Multiple Choice Worth 5 points) Jack Korner is looking into buying a 15-year bond issued by Jurgen Corp. The bond pays a coupon of 7.5 percent annually. Similar bonds will yield 7 percent in the market now. How much should he pay for the bond? $1,046 $1,112 $910 $878 -------------------------------------------------------------------------------- Question 17 (Multiple Choice Worth 5 points) Shirley invested in a U.S. government bond and earned a semiannual yield of 3.8 percent. The bond pays coupons twice a year. What is the effective annual yield (EAY) on this investment? 7.74% 7.6% 3.8% None of the above. -------------------------------------------------------------------------------- Question 18 (Multiple Choice Worth 5 points) You are going to invest 10 percent of your portfolio in the risk-free asset and 90 percent of the portfolio in a stock mutual fund with a beta of 1.5. What will be the beta of your new portfolio? 0.750 0.900 0.135 0.150 -------------------------------------------------------------------------------- Question 19 (True/False Worth 5 points) The appropriate measure of risk for a diversified portfolio is a measure of total risk. True False -------------------------------------------------------------------------------- Question 20 (Multiple Choice Worth 5 points) Sankey, Inc., is a fast growth stock and expects to grow at an annual rate of 35 percent for the next three years. It then will settle to a constant-growth rate of 10 percent. The first dividend will be paid out in year 2 and be equal to $3.00. If the required rate of return is 18 percent, what is the current price of the stock? $38.51 $47.19 $51.56 $65.68

Paper#2499 | Written in 18-Jul-2015

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