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saint mba570 module 6 quiz




Question;1.;Which of the following investments had the largest fluctuations overall return over the past eighty years?;(Points: 10);Small stocksS&P 500Corporate bondsTreasury Bills;Question 2.;2.;Which of the following statements is false?;(Points: 10);The expected return is the return that actually occurs over a particular time period.If;you hold the stock beyond the date of the first dividend, then to;compute your return you must specify how you invest any dividends you;receive in the interim.The;average annual return of an investment during some historical period is;simply the average of the realized returns for each year.The;realized return is the total return we earn from dividends and capital;gains, expressed as a percentage of the initial stock price.;Question 3.;3.;Bank A has 1,000 loans outstanding each for $100,000, that it;expects to be fully repaid today. Each of Bank A's loans has a 6%;probability of default, in which case the bank will receive $0 for each;of the defaulting loans. The chance of default is independent across all;the loans. The expected overall payoff to Bank A is __________.;(Points: 10);$5,000,000$6,000,000$94,000,000$95,000,000;Question 4.;4.;Which of the following statements is false?;(Points: 10);In exchange for bearing systematic risk, investors want to be compensated by earning a higher return.A key step to measuring systematic risk is finding a portfolio that contains only unsystematic risk.When;evaluating the risk of an investment, an investor will care about its;systematic risk, which cannot be eliminated through diversification.To;measure the systematic risk of a stock, we must determine how much of;the variability of its return is due to systematic, market-wide risks;versus diversifiable, firm specific risks.;Question 5.;5.;If the market risk premium is 7%, the risk-free rate is 4%;and IBM?s beta is 0.73, then the expected return of investing in IBM is;closest to __________.;(Points: 10);9.1%10.3%11.0%12.0%;Question 6.;6.;Suppose that in the coming year, you expect Exxon-Mobil stock;to have a volatility of 42% and a beta of 0.9, and Merck's stock to;have a volatility of 24% and a beta of 1.1. The risk-free interest rate;is 4% and the markets expected return is 12%. Which stock has the;highest total risk?;(Points: 10);Merck since it has a lower volatilityMerck since it has a higher betaExxon-Mobil since it has a higher volatilityExxon-Mobil since it has a lower beta;Question 7.;7.;Boeing (BA) has 697.5 million shares outstanding and a market;capitalization of $38.223 billion. Boeing's stock price is closest to;(Points: 10);$18.25$36.70$54.80$63.40;Question 8.;8.;Which of the following statements is false?;(Points: 10);The market portfolio contains more of the smallest stocks and less of the larger stocks.For the market portfolio, the investment in each security is proportional to its market capitalization.Because;the market portfolio is defined as the total supply of securities, the;proportions should correspond exactly to the proportion of the total;market that each security represents.Market capitalization is the total market value of the outstanding shares of a firm.;Question 9.;9.;Which of the following is true of asset betas?;(Points: 10);Asset betas are expected to vary greatly within firms in the same industry.Businesses;that are less sensitive to market and economic conditions tend to have;higher asset betas than more cyclical industries.Businesses;that are less sensitive to market and economic conditions tend to have;lower asset betas than more cyclical industries.Both A and B are correct.;Question 10.;10.;The risk-free rate of interest is 3% and the market risk;premium is 5%. Alpha Company?s hardware division has an asset beta of;1.4, a free cash flow of $450 million, and an expected growth rate of;4.0%. The value of the hardware division (in $millions) is closest to;(Points: 10);$4,500$7,500$8,750$10,000


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