If D1 = $1.50,g (which is constant)= 6.5%,and P0 = $56,what is the stock's expected capital gains yield for the coming year?

A) 6.50% B) 6.83% C) 7.17% D) 7.52% E) 7.90% A) 6.50% B) 6.83% C) 7.17% D) 7.52% E) 7.90%

Paul McLaren holds the following portfolio: \[\begin{array} { c r r } \text { Stock } & \text { Investment } & \text { Beta } \\ \hline \text { A } & \$ 150,000 & 1.40 \\ \text { B } & 50,000 & 0.80 \\ \text { C } & 100,000 & 1.00 \\ \text { D } & 75,000 & 1.20 \\ \text { Total } & \$ 375,000 & \end{array}\] Paul plans to sell Stock A and replace it with Stock E,which has a beta of 0.75.By how much will the portfolio beta change?

A) ?0.190 B) ?0.211 C) ?0.234 D) ?0.260 E) ?0.286 A) ?0.190 B) ?0.211 C) ?0.234 D) ?0.260 E) ?0.286

Exam 29: Basic Financial Tools: a Review

Stocks A,B,and C are similar in some respects: Each has an expected return of 10% and a standard deviation of 25%.Stocks A and B have returns that are independent of one another; i.e.,their correlation coefficient,r,equals zero.Stocks A and C have returns that are negatively correlated with one another; i.e.,r is less than 0.Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B.Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C.Which of the following statements is CORRECT?

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(Multiple Choice)

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Question 1

Correct Answer:

Verified

Sentry Corp.bonds have an annual coupon payment of 7.25%.The bonds have a par value of $1,000,a current price of $1,125,and they will mature in 13 years.What is the yield to maturity on these bonds?

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(Multiple Choice)

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Question 2

Correct Answer:

Verified

A bond has a $1,000 par value,makes annual interest payments of $100,has 5 years to maturity,cannot be called,and is not expected to default.The bond should sell at a premium if interest rates are below 10% and at a discount if interest rates are greater than 10%.

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(True/False)

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Question 3

Correct Answer:

Verified

True

Which of the following statements is CORRECT,assuming stocks are in equilibrium?

(Multiple Choice)

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Question 4

You borrowed $50,000 which you must repay in 10 years.You plan to make an initial deposit today,then make 9 more deposits at the beginning of each the next 9 years,but with the deposits increasing at the inflation rate.You expect to earn 5% on your funds,and you expect a 3% inflation rate.To the nearest dollar,how large must your initial deposit be to enable you to reach your $50,000 target?

(Multiple Choice)

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Question 5

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 6

If D₁ = $1.50,g (which is constant)= 6.5%,and P₀ = $56,what is the stock's expected capital gains yield for the coming year?

(Multiple Choice)

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Question 7

Paul McLaren holds the following portfolio: Stock Investment Beta A \ 150,000 1.40 B 50,000 0.80 C 100,000 1.00 D 75,000 1.20 Total \ 375,000 Paul plans to sell Stock A and replace it with Stock E,which has a beta of 0.75.By how much will the portfolio beta change?

(Multiple Choice)

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Question 8

A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio.

(True/False)

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Question 9

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 10

You just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate,compounded quarterly.If you also add another $5,000 to the account one year (4 quarters)from now and another $7,500 to the account two years (8 quarters)from now,how much will be in the account three years (12 quarters)from now?

(Multiple Choice)

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Question 11

Your bank offers a savings account that pays 3.5% interest,compounded annually.If you invest $1,000 in the account,then how much will it be worth at the end of 25 years?

(Multiple Choice)

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Question 12

You sold your motorcycle and accepted a note with the following cash flow stream as your payment.What was the effective price you received for the car assuming an interest rate of 6.0%?

(Multiple Choice)

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Question 13

If you plotted the returns on a given stock against those of the market,and if you found that the slope of the regression line was negative,the CAPM would indicate that the required rate of return on the stock should be greater than the risk-free rate for a well-diversified investor,assuming that the observed relationship is expected to continue into the future.

(True/False)

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Question 14

DHF Company has a beta of 1.5 and is currently in equilibrium.The required rate of return on the stock is 12.00% versus a required return on an average stock of 10.00%.Now the required return on an average stock increases by 30.0% (not percentage points).Neither betas nor the risk-free rate change.What would DHF's new required return be?

(Multiple Choice)

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Question 15

If an investor buys enough stocks,he or she can,through diversification,eliminate all of the market risk inherent in owning stocks,but as a general rule it will not be possible to eliminate all diversifiable risk.

(True/False)

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Question 16

After receiving a reward for information leading to the arrest of a notorious criminal,you are considering investing it in an annuity that pays $5,000 at the end of each year for 20 years.You could earn 5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

(Multiple Choice)

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Question 17

Even if the correlation between the returns on two securities is +1.0,if the securities are combined in the correct proportions,the resulting 2-asset portfolio will have less risk than either security held alone.

(True/False)

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Question 18

Stock 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 $300,000 invested in Stock A and $100,000 invested in Stock B.The correlation between the two stocks' returns is zero (that is,r_A,B = 0).Which of the following statements is CORRECT?

(Multiple Choice)

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Question 19

The Y-axis intercept of the SML represents the required return of a portfolio with a beta of zero,which is the risk-free rate.

(True/False)

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Question 20

Showing 1 - 20 of 247

Exam 29: Basic Financial Tools: a Review

Sentry Corp.bonds have an annual coupon payment of 7.25%.The bonds have a par value of $1,000,a current price of $1,125,and they will mature in 13 years.What is the yield to maturity on these bonds?

A bond has a $1,000 par value,makes annual interest payments of $100,has 5 years to maturity,cannot be called,and is not expected to default.The bond should sell at a premium if interest rates are below 10% and at a discount if interest rates are greater than 10%.

Which of the following statements is CORRECT,assuming stocks are in equilibrium?

Which of the following statements is CORRECT?

If D1 = $1.50,g (which is constant)= 6.5%,and P0 = $56,what is the stock's expected capital gains yield for the coming year?

Paul McLaren holds the following portfolio: Stock Investment Beta A \ 150,000 1.40 B 50,000 0.80 C 100,000 1.00 D 75,000 1.20 Total \ 375,000 Paul plans to sell Stock A and replace it with Stock E,which has a beta of 0.75.By how much will the portfolio beta change?

A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio.

Which of the following statements is CORRECT?

Your bank offers a savings account that pays 3.5% interest,compounded annually.If you invest $1,000 in the account,then how much will it be worth at the end of 25 years?

You sold your motorcycle and accepted a note with the following cash flow stream as your payment.What was the effective price you received for the car assuming an interest rate of 6.0%?

If an investor buys enough stocks,he or she can,through diversification,eliminate all of the market risk inherent in owning stocks,but as a general rule it will not be possible to eliminate all diversifiable risk.

Even if the correlation between the returns on two securities is +1.0,if the securities are combined in the correct proportions,the resulting 2-asset portfolio will have less risk than either security held alone.

The Y-axis intercept of the SML represents the required return of a portfolio with a beta of zero,which is the risk-free rate.

An Overview of Financial Management and the Financial Environment

Risk and Return: Part I

Risk and Return: Part Ii

Bond Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Corporate Governance

Determining the Cost of Capital

Capital Budgeting: Decision Rules

Cash Flow Estimation and Risk Analysis

Real Options

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Dynamic Capital Structures and Corporate Valuation

Initial Public Offerings, investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Enterprise Risk Management

Bankruptcy, reorganization, and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Time Value of Money

Pension Plan Management

Financial Management in Not-For-Profit Businesses

a Values of the Areas Under the Standard Normal

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If D₁ = $1.50,g (which is constant)= 6.5%,and P₀ = $56,what is the stock's expected capital gains yield for the coming year?