Question 1

Which of the following investments is clearly preferred to the others for a risk-averse investor?

Accepted Answer

A) Investment A   
B) Investment B 
C) Investment C 
D) cannot be determined without additional information 
A) Investment A   
B) Investment B 
C) Investment C 
D) cannot be determined without additional information

Question 2

Investment A has an expected return of 15% per year,while investment B has an expected return of 12% per year.A rational investor will choose

Accepted Answer

A) investment A because of the higher expected return. 
B) investment B because a lower return means lower risk. 
C) investment A if A and B are of equal risk. 
D) investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B. 
A) investment A because of the higher expected return. 
B) investment B because a lower return means lower risk. 
C) investment A if A and B are of equal risk. 
D) investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B.

Question 3

Wendy purchased 800 shares of Robotics Stock at $3 per share on 1/1/09.Wendy sold the shares on 12/31/09 for $3.45.Genetics stock has a beta of 1.3,the risk-free rate of return is 3%,and the market risk premium is 8%.The required return on Genetics Stock is

Accepted Answer

A) 13.4%. 
B) 16.5%. 
C) 17.6%. 
D) 21.1%. 
A) 13.4%. 
B) 16.5%. 
C) 17.6%. 
D) 21.1%.

Question 4

Marble Corp.has a beta of 2.5 and a standard deviation of returns of 20%.The return on the market portfolio is 15% and the risk free rate is 4%.According to CAPM,what is the required rate of return on Collectible's stock?

Accepted Answer

A) 37.5% 
B) 31.5% 
C) 26.5% 
D) 23.5% 
A) 37.5% 
B) 31.5% 
C) 26.5% 
D) 23.5%

Question 5

Surf and Spray Inc.has a beta equal to 1.8 and a required return of 15% based on the CAPM.If the market risk premium is 7.5%,the risk-free rate of return is

Accepted Answer

A) 4.1%. 
B) 3.4%. 
C) 2.0%. 
D) 1.5%. 
A) 4.1%. 
B) 3.4%. 
C) 2.0%. 
D) 1.5%.

Question 6

Stock A has the following returns for various states of the economy: State of   Stock A's expected return is

Accepted Answer

A) 5.4%. 
B) 7.2%. 
C) 8.2%. 
D) 9.6% 
A) 5.4%. 
B) 7.2%. 
C) 8.2%. 
D) 9.6%

Question 7

Bay Land,Inc.has the following distribution of returns:   Assuming that these returns are normally distributed,what is the probability that Bay Land,Inc.will return less than 7.25%? Show all work,and clearly explain and state your answer.

Accepted Answer

Exp.Return = (.3 × .25)+ (.4 × .15)+ (.3

Question 8

Diversifying among different kinds of assets is called asset allocation.

Accepted Answer

A) True 
 B)False

Question 9

Surf and Spray Inc.has a beta equal to 1.8 and a required return of 15% based on the CAPM.If the risk free rate of return is 4.2%,the expected return on the market portfolio is

Accepted Answer

A) 21%. 
B) 19.2%. 
C) 13.4%. 
D) 10.2%. 
A) 21%. 
B) 19.2%. 
C) 13.4%. 
D) 10.2%.

Question 10

A security with a beta of one has a required rate of return equal to the overall market rate of return.

Accepted Answer

A) True 
 B)False

Question 11

Wildings,Inc.common stock has a beta of 1.2.If the expected risk free return is 4% and the expected market risk premium is 9%,what is the expected return on Wildings' stock?

Accepted Answer

A) 10.0% 
B) 12.0% 
C) 13.8% 
D) 14.8% 
A) 10.0% 
B) 12.0% 
C) 13.8% 
D) 14.8%

Question 12

Proper diversification generally results in the elimination of risk.

Accepted Answer

A) True 
 B)False

Question 13

The market rewards the patient investor,for between 1926 and 2008,there has never been a time when an investor lost money if she held an all-stock portfolio for ten years.

Accepted Answer

A) True 
 B)False

Question 14

What is the name given to the equation that financial managers use to measure an investor's required rate of return?

Accepted Answer

A) the standard deviation 
B) the capital asset pricing model 
C) the coefficient of variation 
D) the MIRR 
A) the standard deviation 
B) the capital asset pricing model 
C) the coefficient of variation 
D) the MIRR

Question 15

The return on the market portfolio is currently 12%.Mobile Phone Corporation stockholders require a rate of return of 30% and the stock has a beta of 3.2.According to CAPM,determine the risk-free rate.

Accepted Answer

A) 9.80% 
B) 6.50% 
C) 4.64% 
D) 3.82% 
A) 9.80% 
B) 6.50% 
C) 4.64% 
D) 3.82%

Question 16

Stock A has the following returns for various states of the economy: State of   Stock A's expected return is

Accepted Answer

A) 9.9%. 
B) 12.7%. 
C) 13.8%. 
D) 16.5%. 
A) 9.9%. 
B) 12.7%. 
C) 13.8%. 
D) 16.5%.

Question 17

Most stocks have betas between

Accepted Answer

A) -1.00 and 1.00. 
B) 0.00 and 1.00. 
C) 0.60 and 1.60. 
D) 1.00 and 2.00. 
A) -1.00 and 1.00. 
B) 0.00 and 1.00. 
C) 0.60 and 1.60. 
D) 1.00 and 2.00.

Question 18

Due to strict stock market controls,the most a stock's value can drop in one trading day is 5%.

Accepted Answer

A) True 
 B)False

Question 19

The S&P 500 index must be used as the measure of market return in the CAPM or the results are not theoretically accurate.

Accepted Answer

A) True 
 B)False

Question 20

The appropriate measure for risk according to the capital asset pricing model is

Accepted Answer

A) the standard deviation of a firm's cash flows. 
B) alpha. 
C) the standard deviation of a firm's stock returns. 
D) beta. 
A) the standard deviation of a firm's cash flows. 
B) alpha. 
C) the standard deviation of a firm's stock returns. 
D) beta.

Which of the following investments is clearly preferred to the others for a risk-averse investor?

Investment A has an expected return of 15% per year,while investment B has an expected return of 12% per year.A rational investor will choose

Wendy purchased 800 shares of Robotics Stock at $3 per share on 1/1/09.Wendy sold the shares on 12/31/09 for $3.45.Genetics stock has a beta of 1.3,the risk-free rate of return is 3%,and the market risk premium is 8%.The required return on Genetics Stock is

Marble Corp.has a beta of 2.5 and a standard deviation of returns of 20%.The return on the market portfolio is 15% and the risk free rate is 4%.According to CAPM,what is the required rate of return on Collectible's stock?

Surf and Spray Inc.has a beta equal to 1.8 and a required return of 15% based on the CAPM.If the market risk premium is 7.5%,the risk-free rate of return is

Stock A has the following returns for various states of the economy: State of Stock A's expected return is

Bay Land,Inc.has the following distribution of returns: Assuming that these returns are normally distributed,what is the probability that Bay Land,Inc.will return less than 7.25%? Show all work,and clearly explain and state your answer.

Diversifying among different kinds of assets is called asset allocation.

Surf and Spray Inc.has a beta equal to 1.8 and a required return of 15% based on the CAPM.If the risk free rate of return is 4.2%,the expected return on the market portfolio is

A security with a beta of one has a required rate of return equal to the overall market rate of return.

Wildings,Inc.common stock has a beta of 1.2.If the expected risk free return is 4% and the expected market risk premium is 9%,what is the expected return on Wildings' stock?

Proper diversification generally results in the elimination of risk.

The market rewards the patient investor,for between 1926 and 2008,there has never been a time when an investor lost money if she held an all-stock portfolio for ten years.

What is the name given to the equation that financial managers use to measure an investor's required rate of return?

The return on the market portfolio is currently 12%.Mobile Phone Corporation stockholders require a rate of return of 30% and the stock has a beta of 3.2.According to CAPM,determine the risk-free rate.

Stock A has the following returns for various states of the economy: State of Stock A's expected return is

Most stocks have betas between

Due to strict stock market controls,the most a stock's value can drop in one trading day is 5%.

The S&P 500 index must be used as the measure of market return in the CAPM or the results are not theoretically accurate.

The appropriate measure for risk according to the capital asset pricing model is

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

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Exam 6: The Meaning and Measurement of Risk and Return

Which of the following investments is clearly preferred to the others for a risk-averse investor?

Investment A has an expected return of 15% per year,while investment B has an expected return of 12% per year.A rational investor will choose

Wendy purchased 800 shares of Robotics Stock at $3 per share on 1/1/09.Wendy sold the shares on 12/31/09 for $3.45.Genetics stock has a beta of 1.3,the risk-free rate of return is 3%,and the market risk premium is 8%.The required return on Genetics Stock is

Marble Corp.has a beta of 2.5 and a standard deviation of returns of 20%.The return on the market portfolio is 15% and the risk free rate is 4%.According to CAPM,what is the required rate of return on Collectible's stock?

Surf and Spray Inc.has a beta equal to 1.8 and a required return of 15% based on the CAPM.If the market risk premium is 7.5%,the risk-free rate of return is

Stock A has the following returns for various states of the economy: State of Stock A's expected return is

Bay Land,Inc.has the following distribution of returns: Assuming that these returns are normally distributed,what is the probability that Bay Land,Inc.will return less than 7.25%? Show all work,and clearly explain and state your answer.

Diversifying among different kinds of assets is called asset allocation.

Surf and Spray Inc.has a beta equal to 1.8 and a required return of 15% based on the CAPM.If the risk free rate of return is 4.2%,the expected return on the market portfolio is

A security with a beta of one has a required rate of return equal to the overall market rate of return.

Wildings,Inc.common stock has a beta of 1.2.If the expected risk free return is 4% and the expected market risk premium is 9%,what is the expected return on Wildings' stock?

Proper diversification generally results in the elimination of risk.

The market rewards the patient investor,for between 1926 and 2008,there has never been a time when an investor lost money if she held an all-stock portfolio for ten years.

What is the name given to the equation that financial managers use to measure an investor's required rate of return?

The return on the market portfolio is currently 12%.Mobile Phone Corporation stockholders require a rate of return of 30% and the stock has a beta of 3.2.According to CAPM,determine the risk-free rate.

Stock A has the following returns for various states of the economy: State of Stock A's expected return is

Most stocks have betas between

Due to strict stock market controls,the most a stock's value can drop in one trading day is 5%.

The S&P 500 index must be used as the measure of market return in the CAPM or the results are not theoretically accurate.

The appropriate measure for risk according to the capital asset pricing model is

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters