Question 1

Which of the following is NOT a potential problem with beta and its estimation?

Accepted Answer

A)  Sometimes a security or project does not have a past history which can be used as a basis for calculating beta. 
B)  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. 
C)  The beta of an "average stock," or "the market," can change over time, sometimes drastically. 
D)  Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. 
E)  All of the statements above are potentially serious problems. 
A)  Sometimes a security or project does not have a past history which can be used as a basis for calculating beta. 
B)  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. 
C)  The beta of an "average stock," or "the market," can change over time, sometimes drastically. 
D)  Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. 
E)  All of the statements above are potentially serious problems.

Question 2

The Y-axis intercept of the SML indicates the return on an individual asset when the realized return on an average (b = 1) stock is zero.

Accepted Answer

A) True 
 B)False

Question 3

Arbitrage pricing theory is based on the premise that more than one factor affects stock returns, and the factors are specified to be (1) market returns, (2) dividend yields, and (3) changes in inflation.

Accepted Answer

A) True 
 B)False

Question 4

You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks. The portfolio beta is equal to 1.12. You have decided to sell a lead mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a steel company stock (b = 2.00). What is the new beta of the portfolio?

Accepted Answer

A)  1.1139 
B)  1.1700 
C)  1.2311 
D)  1.2927 
E)  1.3573 
A)  1.1139 
B)  1.1700 
C)  1.2311 
D)  1.2927 
E)  1.3573

Question 5

A stock with a beta equal to -1.0 has zero systematic (or market) risk.

Accepted Answer

A) True 
 B)False

Which of the following is NOT a potential problem with beta and its estimation?

The Y-axis intercept of the SML indicates the return on an individual asset when the realized return on an average (b = 1) stock is zero.

Arbitrage pricing theory is based on the premise that more than one factor affects stock returns, and the factors are specified to be (1) market returns, (2) dividend yields, and (3) changes in inflation.

A stock with a beta equal to -1.0 has zero systematic (or market) risk.

An Overview of Financial Management

Risk and Return: Part I

Bond Valuation

Basic Stock Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Financial Planning and Forecasting Financial Statements

Determining the Cost of Capital

Corporate Valuation and Value-Based Management

Capital Budgeting: Decision Criteria

Capital Budgeting: Cash Flows and Risk

Real Options

Capital Structure Decisions: Part I

Capital Structure Decisions: Part II

Distributions to Shareholders

Ipos, Investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing

Working Capital Management

Providing and Obtaining Credit

Other Topics in Working Capital Management

Derivatives and Risk Management

Bankruptcy, Reorganization, and Liquidation

Mergers, Lbos, Divestitures, and Holding Companies

Multinational Financial Management

Filters

Exam 3: Risk and Return: Part II

Which of the following is NOT a potential problem with beta and its estimation?

The Y-axis intercept of the SML indicates the return on an individual asset when the realized return on an average (b = 1) stock is zero.

Arbitrage pricing theory is based on the premise that more than one factor affects stock returns, and the factors are specified to be (1) market returns, (2) dividend yields, and (3) changes in inflation.

A stock with a beta equal to -1.0 has zero systematic (or market) risk.

An Overview of Financial Management

Risk and Return: Part I

Bond Valuation

Basic Stock Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Financial Planning and Forecasting Financial Statements

Determining the Cost of Capital

Corporate Valuation and Value-Based Management

Capital Budgeting: Decision Criteria

Capital Budgeting: Cash Flows and Risk

Real Options

Capital Structure Decisions: Part I

Capital Structure Decisions: Part II

Distributions to Shareholders

Ipos, Investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing

Working Capital Management

Providing and Obtaining Credit

Other Topics in Working Capital Management

Derivatives and Risk Management

Bankruptcy, Reorganization, and Liquidation

Mergers, Lbos, Divestitures, and Holding Companies

Multinational Financial Management

Filters