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##### FIN 534 -Week 5 Quiz 4

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Question;? Question 1 0 out of 2 pointsWhich of the following statements is CORRECT?? Question 2 2 out of 2 pointsDuring the coming year, the market risk premium (rM? rRF), is expected to fall, while the risk-free rate, rRF, is expected to remain the same. Given this forecast, which of the following statements is CORRECT?? Question 3 0 out of 2 pointsWhich of the following is most likely to occur as you add randomly selected stocks to your portfolio, which currently consists of 3 average stocks?? Question 4 2 out of 2 pointsWhich of the following statements is CORRECT?;? Question 5 2 out of 2 pointsYour portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, betas of 1.6, and standard deviations of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rXY, is zero. Which of the following statements best describes the characteristics of your 2-stock portfolio?;? Question 6 2 out of 2 pointsWhich of the following statements isCORRECT?;? Question 7 2 out of 2 pointsA highly risk-averse investor is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolio. The three stocks currently held all have b = 1.0, and they are perfectly positively correlated with the market. Potential new Stocks A and B both have expected returns of 15%, are in equilibrium, and are equally correlated with the market, with r = 0.75. However, Stock A's standard deviation of returns is 12% versus 8% for Stock B. Which stock should this investor add to his or her portfolio, or does the choice not matter?;? Question 8 2 out of 2 pointsWhich of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE?;? Question 9 2 out of 2 pointsStock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be true, according to the CAPM?;? Question 10 2 out of 2 pointsBob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%. Becky also has a $50,000 portfolio, but it has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%. The correlation coefficient, r, between Bob's and Becky's portfolios is zero. If Bob and Becky marry and combine their portfolios, which of the following best describes their combined $100,000 portfolio?? Question 11 2 out of 2 pointsStock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true, assuming the CAPM is correct.? Question 12 2 out of 2 pointsWhich of the following statements is CORRECT?? Question 13 0 out of 2 pointsStock A has an expected return of 12%, a beta of 1.2, and a standard deviation of 20%. Stock B also has a beta of 1.2, but its expected return is 10% and its standard deviation is 15%. Portfolio AB has $900,000 invested in Stock A and $300,000 invested in Stock B. The correlation between the two stocks' returns is zero (that is, rA,B = 0). Which of the following statements is CORRECT?? Question 14 2 out of 2 pointsWhich of the following statements is CORRECT?? Question 15 2 out of 2 pointsAssume that the risk-free rate is 5%. Which of the following statements is CORRECT?? Question 16 2 out of 2 pointsAn increase in a firm?s expected growth rate would cause its required rate of return to? Question 17 2 out of 2 pointsTwo constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?;? Question 18 0 out of 2 pointsA stock is expected to pay a year-end dividendof $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?? Question 19 2 out of 2 pointsStocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?A B Price $25 $40Expected growth 7% 9%Expected return 10% 12%? Question 20 2 out of 2 pointsThe preemptive right is important to shareholdersbecause it;? Question 21 0 out of 2 pointsWhich of the following statements is CORRECT?;? Question 22 2 out of 2 pointsFor a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then;? Question 23 2 out of 2 pointsWhich of the following statements is CORRECT?? Question 24 2 out of 2 pointsIf markets are in equilibrium, which of the following conditions will exist?? Question 25 2 out of 2 pointsIf a stock?s dividend is expectedto grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.;? Question 26 2 out of 2 pointsStocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT?? Question 27 2 out of 2 pointsStocks A and B have the following data. Assumingthe stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?A B Required return 10% 12%Market price $25 $40Expected growth 7% 9%? Question 28 2 out of 2 pointsCompanies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT?;? Question 29 2 out of 2 pointsStocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which ofthe following statements is CORRECT?X Y Price $30 $30Expected growth (constant) 6% 4%Required return 12% 10%;? Question 30 2 out of 2 pointsWhich of the following statements is CORRECT?

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