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Question;1. Next year's annual dividend divided by the current stock price is called the:(a) yield to maturity.(b) total yield.(c) dividend yield.(d) capital gains yield.(e) earnings yield.2. Payments made by a corporation to its shareholders, in the form of eithercash, stock or payments in kind, are called:(a) retained earnings.(b) net income.(c) dividends.(d) redistributions.(e) infused equity.3. The excess return required from a risky asset over that required from a risk-free asset is called the:(a) risk premium.(b) geometric premium.(c) excess return.(d) average return.(e) variance.14. A stock had returns of 8 percent, -2 percent, 4 percent, and 16 percent overthe past four years. What is the standard deviation of this stock for the pastfour years?(a) 6.3 percent(b) 6.6 percent(c) 7.1 percent(d) 7.5 percent(e) 7.9 percent5. Nuvo, Inc. stock has a beta of.86 and an expected return of 10.5 percent.The risk-free rate of return is 3.2 percent and the market rate of return is 11.2percent. Which one of the following statements is true given this information?(a) The return on Nuvo stock will graph below the Security Market Line.(b) Nuvo stock is underpriced.(c) The expected return on Nuvo stock based on the Capital Asset PricingModel is 9.88 percent.(d) Nuvo stock has more systematic risk than the overall market.(e) Nuvo stock is correctly priced.6. The common stock of Flavorful Teas has an expected return of 14.4 percent.The return on the market is 10 percent and the risk-free rate of return is 3.5percent. What is the beta of this stock?(a) 0.65(b) 1.09(c) 1.32(d) 1.44(e) 1.687. An investment is acceptable if its IRR:(a) is exactly equal to its net present value (NPV).(b) is exactly equal to zero.(c) is less than the required return.(d) exceeds the required return.(e) is exactly equal to 100 percent.8. A project costing $20,000 generates cash inows of $9,000 annually for therst 3 years, followed by cash outows of $1,000 annually for 2 years. Atmost, this project has dierent IRR(s).(a) one2(b) two(c) three(d) ve9. Which of the following stocks is (are) incorrectly priced if the risk-free rate is4% and the market risk premium is 6%?Stock A B CBeta 1.25.80 1.06Expected Return 12.6% 8.8% 11.2%(a) A only(b) B only(c) C only(d) A and C only(e) A, B, and C10. The standard deviation of a portfolio that contains all securities in the marketwill equal:(a) Zero.(b) One.(c) The portfolio beta.(d) The systematic risk.(e) The risk premium of the portfolio.11. The internal rate of return on a project is 11.24%. Choose the TRUE state-ment(s) if the project has a Required Rate of Return (RRR) of 9.5%? (Cashows are conventional.)I. Both NPV > 0 and IRR > RRRII. IRR > RRR.III. NPV > 0.IV. IRR > RRR but there is not enough information to determine ifNPV > 0 or if NPV < 0.(a) I, II and III are the only true statements.(b) II and IV are the only true statements.(c) II is the only true statement.(d) IV is the only true statement.(e) All of the statements are true.312. The principle of diversication states that spreading an investment over anumber of assets will eliminate:(a) All of the risk.(b) All of the systematic risk and part of the unsystematic risk.(c) All of the unsystematic risk and part of the systematic risk.(d) The systematic risk.(e) The unsystematic risk.13. Suppose you observe the following situation:Beta Expected ReturnPete Corp. 1.3 24%Repeat Corp 0.65 13%Assume these securities are correctly priced. Based on the CAPM, what isthe market risk premium?(a) 14.9%(b) 2.9%(c) 16.9%(d) 4.9%(e) 17.9%The following is for problems 13-15. A stock has a beta of 1.3 and an expectedreturn of 17%. The market portfolio currently earns 12%.14. What is the expected return on a portfolio that is equally invested in the twoassets? (The stock and the market portfolio).(a) 14.5%(b) 13.5%(c) 12%(d) 17%(e) 16.5%15. If a portfolio of the two assets has a beta of 0.80 what is the portfolio weightson the stock?(a) 2/3(b) -2/3(c) 1/3(d) 23/45(e) -23/45416. If a portfolio of the two assets has an expected return of 10% what is it'sbeta? (If you nd a negative risk-free rate you are on the right track)(a) 0.78(b) 0.88(c) 1.08(d) 1.18(e) 3.5417. Analyzing a Portfolio. You have to invest in a portfolio containing Stock X,Stock Y, and a risk free asset. You must invest all of you money. Your goalis to create a portfolio that has an expected return of 13% and that has only80% of the risk of the overall market. If X has an expected return of 31%and a beta of 1.8. Y has an expected return of 20% and a beta of 1.3 andthe risk free rate is 7%, what is the portfolio weight on X?(a) 2/3(b) -2/3(c) 2/6(d) -2/6(e) -0.23718. Ecient portfolios are those that oer:(a) Highest expected return for a given level of risk(b) Highest risk for a given level of expected return(c) The maximum risk and expected return(d) All of the above19. A project anticipates net cashows of $10,000 at the end of year 1, with suchamount growing at the expected 5% rate of ination over the subsequent 4years. Calculate the real present value of this 5-year cash stream if the rmemploys a nominal discount rate of 15%.(a) $33,522(b) $38,377(c) $43,294(d) $55,00020. A rm generates sales of $250,000, depreciation expense of $50,000, taxableincome of $50,000, and has a 35% tax rate. By how much does net cashowdeviate from net income?(a) $17,5005(b) $50,000(c) $67,500(d) $82,50021. How does net working capital aect the NPV of a 5-year project if workingcapital is expected to increase by $25,000 and the rm has a 15% cost ofcapital?(a) NPV will increase by $9,322.(b) NPV will increase by $12,571.(c) NPV will decrease by $25,000.(d) NPV will decrease by $12,571.22. A parcel of corporate land was recently dedicated as the new plant site. Whatcost allocation should the land receive, based on the following: original costof $200,000, market value of $300,000, net book value of $200,000, a recentoer to purchase for $250,000.(a) $200,000(b) $250,000(c) $275,000(d) $300,00023. New projects or products can have an indirect eect on the rm as well asa direct eect. Which of the following appears to be an indirect eect oflaunching a new product?(a) Additional working capital is required.(b) Sales force will need to be increased.(c) Sales of a similar product of your rm's will decline.(d) Additional machinery must be purchased.24. Mr. Hopper is expected to retire in 28 years and he wishes accumulate$750,000 in his retirement fund by that time. If the interest rate is 10%per year, how much should Mr. Hopper put into the retirement fund at theend of each year in order to achieve this goal?(a) $4,559.44(b) $5,588.26(c) $9,118.88(d) $10,018.6725. What is the monthly mortgage payment on a $150,000 mortgage for 30 yearsan APR 5.85%?6(a) $784.71(b) $805.65(c) $884.91(d) $925.6426. The present value of a $2.50 dividend received at the end of this year thatgrows at 4% forever given a cost of capital of 12% is worth how much today?(a) $20.83(b) $62.50(c) $54.23(d) $31.2527. You would like to have enough money saved to receive a $100,000 per yearperpetuity after retirement so that you and your family can lead a good life.How much would you need to save in your retirement fund to achieve thisgoal (assume that the perpetuity payments start one year from the date ofyour retirement. The interest rate is 10%)?(a) $1,000,000(b) $10,000,000(c) $100,000(d) None of the above28. Sam's Company expects to pay a dividend of $6 per share at the end of yearone, $9 per share at the end of year two and then be sold for $136 per share.If the required rate on the stock is 20%, what is the current value of thestock?(a) $100.10(b) $105.69(c) $110.00(d) $120.2929. Which of the following is the likely price on a bond that has a current priceof $1,100 when interest rates rise?(a) $1,050(b) $1,100(c) $1,225(d) Can not be determined30. What is the expected YTM on a bond that pays a $15 coupon annually hasa $1,000 par value, and matures in 6 years if the current price of the bond is$978?7(a) 1.89%(b) 3.67%(c) 9.78%(d) 15.00%

 

Paper#50944 | Written in 18-Jul-2015

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