Exam 2: Risk and Return: Part I

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Risk aversion is a general dislike for risk and a preference for certainty. That is, investors would be willing to give up a risk premium of return in order to obtain a lower return with certainty.

(True/False)

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Question 81

Calculate the required rate of return for Mercury Inc., assuming that investors expect a 5 percent rate of inflation in the future. The real risk-free rate is equal to 3 percent and the market risk premium is 5 percent. Mercury has a beta of 2.0, and its realized rate of return has averaged 15 percent over the last 5 years.

(Multiple Choice)

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Question 82

Which of the following statements is most correct?

(Multiple Choice)

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Question 83

When a firm makes bad managerial judgements or has unforeseen negative events happen to it that affect its returns, these random events are unpredictable and therefore cannot be diversified away by the investor.

(True/False)

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Question 84

Stock A has a beta of 1.2 and a standard deviation of 20 percent. Stock B has a beta of 0.8 and a standard deviation of 25 percent. Portfolio P is a $200,000 portfolio consisting of $100,000 invested in Stock A and $100,000 invested in Stock B. Which of the following statements is most correct? (Assume that the required return is determined by the Security Market Line.)

(Multiple Choice)

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Question 85

Which of the following statements is most correct?

(Multiple Choice)

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Question 86

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Risk aversion is a general dislike for risk and a preference for certainty. That is, investors would be willing to give up a risk premium of return in order to obtain a lower return with certainty.

Which of the following statements is most correct?

When a firm makes bad managerial judgements or has unforeseen negative events happen to it that affect its returns, these random events are unpredictable and therefore cannot be diversified away by the investor.

Which of the following statements is most correct?

An Overview of Financial Management

Risk and Return: Part II

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

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