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One reason why we are not concerned with idiosyncratic risk




Which of the following is true regarding market risk? (Points: 1);It is measured by beta.;It is also called nondiversifiable risk.;It is also called systematic risk.;all of the above;2.If an investor purchases a share of stock for $300, collects a dividend during the year equal to $35 a share, and sells the stock at the end of the year for $289, what is the investor?s return for the year? (Points: 1);12.11%;8.30%;8.00%;15.33%;3.One reason why we are not concerned with idiosyncratic risk (also called firm-specific risk) is that: (Points: 1);most risk is not firm-specific, so we can ignore it.;through hedging and insurance, investors may now invest in stocks with almost no risk exposure of any kind.;it is easy and almost costless to diversify one?s portfolio and eliminate idiosyncratic risk.;investing in bonds can offset the idiosyncratic risks of shares of stock.;4.Beta is estimated as the slope of a regression line fit to pairs of periodic returns, (rx, ry), where: (Points: 1);rx is the return for a market index such as the S&P 500 Index.;rxis the return for the stock being analyzed?for example, IBM?s return if we are estimating IBM?s beta.;the slope measures the average return for the market portfolio for each percentage change in the value of the security of interest.;ryis the return for the market index such as the S&P 500 Index.;5.The financing mix reflected in the WACC should: (Points: 1);reflect the desired mix and not necessarily the mix being used to finance a specific project.;vary from project to project, depending on how they are financed.;always reflect the firm?s current capital structure.;None of these answers is correct.;6.Which of the following best describes a pure-play? (Points: 1);a private firm that is held in isolation in a one-company investment portfolio;a publicly traded firm that is similar to the company or project being analyzed;Both a and b are correct.;Neither a nor b is correct.;7.Which of the following is beta is used for? (Points: 1);estimating a regression line;estimating a firm?s total risk to be used in the WACC;estimating a firm?s marketrisk and used with the CAPM;estimating the amount of leverage used by the firm;8.The Hamada Equation allows the firm to: (Points: 1);solve for a company?s total risk.;adjust the beta of a pure-play firm for its use of debt financing.;estimate its asset beta.;Both b and c are correct.;9.Which of the following statements regarding the cost of debt is true? (Points: 1);The cost of debt for bonds equals the coupon rate of outstanding bonds.;The cost of debt for bonds is found by dividing the price by the annual coupon.;The cost of debt for bonds is found by calculating their yield to maturity.;The cost of debt equals the flotation costs charged by investment bankers who advise the firm.;10.Chapter 9 discusses three different types of returns. Identify the item in the list below that is NOT one of those three types of returns. (Points: 1);the actual rate of return;the expected rate of return;the risk-free rate of return;the required rate of return


Paper#27958 | Written in 18-Jul-2015

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