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Finance Questions




Question;1. Consider the following information and then calculate the required rate of return for the Scientific Investment Fund, which holds 4 stocks. The market?s required rate of return is 15.0%, the risk-free rate is 7.0%, and the Fund's assets are as follows: 30Stock Investment BetaA $ 200,000 1.50B 300,000 -0.50C 500,000 1.25D 1,000,000 0.75(Points: 2)10.67%11.23%11.82%13.10%Question 2. 2. Calculate the required rate of return for Mercury, Inc., assuming that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) Mercury has a beta of 1.00, and (5) its realized rate of return has averaged 15.0% over the last 5 years.(Points: 2)10.29%10.83%11.40%12.00%Question 3. 3. The SML relates required returns to firms? systematic (or market) risk. The slope and intercept of this line can be influenced by managerial actions. (Points: 2)TrueFalseQuestion 4. 4. Which of the following is NOT a potential problem with beta and its estimation? (Points: 2)Sometimes a security or project does not have a past history which can be used as a basis for calculating beta.Sometimes, during a period when the company is undergoing a change such as toward more leverage, or riskier assets, the calculated beta will be drastically different than the ?true? or ?expected future? beta.The beta of ?the market,? can change over time, sometimes drastically.Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.Question 5. 5. The slope of the SML is determined by the value of beta. (Points: 2)TrueFalseQuestion 6. 6. It is possible for a firm to have a positive beta, even if the correlation between its returns and those of another firm are negative. (Points: 2)TrueFalseQuestion 7. 7. The CAPM is a multi-period model which takes account of differences in securities? maturities, and it can be used to determine the required rate of return for any given level of systematic risk. (Points: 2)TrueFalseQuestion 8. 8. We will almost always find that the beta of a diversified portfolio is less stable over time than the beta of a single security. (Points: 2)TrueFalseQuestion 9. 9. In a portfolio of three different stocks, which of the following could NOT be true? (Points: 2)The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isolation.The riskiness of the portfolio is greater than the riskiness of one or two of the stocks.The beta of the portfolio is less than the betas of each of the individual stocks.The beta of the portfolio is greater than the beta of one or two of the individual stocks? betas.Question 10. 10. Which is the best measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio? (Points: 2)Variance, correlation coefficient.Standard deviation, correlation coefficient.Beta, variance.Coefficient of variation, beta.


Paper#49498 | Written in 18-Jul-2015

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