Question 1. 1. We assume investors are risk averse, and therefore they: (Points: 1) are equally concerned with upside potential and downside risk.;expect a higher return for bearing more risk.;will pay more for an investment with higher risk.;have very high required rates of return.;Question 2. 2. Which of the following statements regarding the cost of equity is true? (Points: 1) It can be estimated in three different ways.;It is always estimated using the present value of future dividends approach.;It is estimated by solving for the discount rate for a perpetuity.;It is generally lower than the cost of debt because equity holders are paid after taxes are paid.;Question 3. 3. 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.;Question 4. 4. 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.;Question 5. 5. Total risk is measured by: (Points: 1) the standard deviation of returns.;the firm?s beta.;Moody?s, Standard & Poor?s, and Fitch ratings.;the variability of EBIT.;Question 6. 6. Investors will make an investment if: (Points: 1) the historical rate of return exceeds the expected rate of return.;the required rate of return exceeds the expected rate of return.;the expected rate of return exceeds the actual rate of return.;the expected rate of return exceeds the required rate of return.;Question 7. 7. A bond pays semiannual coupon payments of $30 each. It matures in 20 years and is selling for $1,200. What is the firm?s cost of debt if the bond?s par value is $1,000? (Don?t forget this is a semiannual coupon.) (Points: 1) 2.23%;4.48%;1.80%;3.60%;Question 8. 8. Which of the following statements regarding business risk, financial risk, and investors? risk, is true? (Points: 1) Business risk is very similar to the risk of bankruptcy and is closely linked to the amount of debt in a firm?s financing mix.;Financial risk is associated with the returns earned by equity investors.;Business risk is often measured by the variability of earnings before depreciation and taxes and is closely associated with the risk inherent in the goods and services a business is selling.;Investment risk is the uncertainty associated with a firm?s investment projects. It can be thought of as the likelihood that the expected IRR or NPV from an investment project will not materialize.;Question 9. 9. 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%;Question 10. 10. In the Capital Asset Pricing Model, the market risk premium is estimated over a long period of time because: (Points: 1) more data is always better than less.;a longer holding period gives a more reliable estimate because it is, in effect, a larger sample size.;almost all investors hold stocks for many years, so it matches their investment horizon.;historical returns are the best indicators of future returns.
Paper#78608 | Written in 18-Jul-2015Price : $22