Question 1

One example of a nondiversifiable risk is the sudden:

Accepted Answer

A) resignation of a well-respected president of a firm. 
B) passing of a well-respected Federal Reserve Bank chairman. 
C) resignation of a key employee of a major manufacturer. 
D) replacement of a firm's workforce with robots. 
E) closing of a business due to a lack of sales. 
A) resignation of a well-respected president of a firm. 
B) passing of a well-respected Federal Reserve Bank chairman. 
C) resignation of a key employee of a major manufacturer. 
D) replacement of a firm's workforce with robots. 
E) closing of a business due to a lack of sales.

Question 2

A portfolio is comprised of 100 shares of Stock A valued at $22 a share,600 shares of Stock B valued at $17 each,400 shares of Stock C valued at $46 each,and 200 shares of Stock D valued at $38 each.What is the portfolio weight of Stock C?

Accepted Answer

A) 46.87 percent 
B) 48.09 percent 
C) 42.33 percent 
D) 45.27 percent 
E) 47.92 percent 
A) 46.87 percent 
B) 48.09 percent 
C) 42.33 percent 
D) 45.27 percent 
E) 47.92 percent

Question 3

The market has an expected rate of return of 9.8 percent.The long-term government bond is expected to yield 4.5 percent and the U.S.Treasury bill is expected to yield 3.4 percent.The inflation rate is 3.1 percent.What is the market risk premium?

Accepted Answer

A) 2.2 percent 
B) 3.3 percent 
C) 5.3 percent 
D) 6.4 percent 
E) 6.7 percent 
A) 2.2 percent 
B) 3.3 percent 
C) 5.3 percent 
D) 6.4 percent 
E) 6.7 percent

Question 4

The rate of return on the common stock of Flowers by Flo is expected to be 14 percent in a boom economy,8 percent in a normal economy,and only 2 percent in a recessionary economy.The probabilities of these economic states are 20 percent for a boom,70 percent for a normal economy,and 10 percent for a recession.What is the variance of the returns?

Accepted Answer

A) .001044 
B) .001280 
C) .001863 
D) .002001 
E) .002471 
A) .001044 
B) .001280 
C) .001863 
D) .002001 
E) .002471

Question 5

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in the:

Accepted Answer

A) capital market line which shows that all investors will only invest in the riskless asset. 
B) capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. 
C) security market line which shows that all investors will invest in the minimum variance portfolio. 
D) security market line which shows that all investors will invest only in the riskless asset. 
E) characteristic line which shows that all investors will invest in the same combination of securities. 
A) capital market line which shows that all investors will only invest in the riskless asset. 
B) capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. 
C) security market line which shows that all investors will invest in the minimum variance portfolio. 
D) security market line which shows that all investors will invest only in the riskless asset. 
E) characteristic line which shows that all investors will invest in the same combination of securities.

Question 6

If the covariance of Stock A with Stock B is .20,then what is the covariance of Stock B with Stock A?

Accepted Answer

A) .20 
B) .80 
C) −.20 
D) 4 
E) −1.20 
A) .20 
B) .80 
C) −.20 
D) 4 
E) −1.20

Question 7

The expected return on a portfolio:

Accepted Answer

A) can be greater than the expected return on the best performing security in the portfolio. 
B) can be less than the expected return on the worst performing security in the portfolio. 
C) is independent of the performance of the overall economy. 
D) is limited by the returns on the individual securities within the portfolio. 
E) is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal. 
A) can be greater than the expected return on the best performing security in the portfolio. 
B) can be less than the expected return on the worst performing security in the portfolio. 
C) is independent of the performance of the overall economy. 
D) is limited by the returns on the individual securities within the portfolio. 
E) is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal.

Question 8

The variance of a portfolio comprised of many securities is primarily dependent upon the:

Accepted Answer

A) variances of the securities held within the portfolio. 
B) beta of the portfolio. 
C) portfolio's correlation with the market. 
D) covariance between the overall portfolio and the market. 
E) covariances between the individual securities. 
A) variances of the securities held within the portfolio. 
B) beta of the portfolio. 
C) portfolio's correlation with the market. 
D) covariance between the overall portfolio and the market. 
E) covariances between the individual securities.

Question 9

Zelo stock has a beta of 1.23.The risk-free rate of return is 2.86 percent and the market rate of return is 11.47 percent.What is the amount of the risk premium on Zelo stock?

Accepted Answer

A) 9.47 percent 
B) 12.60 percent 
C) 11.54 percent 
D) 10.59 percent 
E) 12.30 percent 
A) 9.47 percent 
B) 12.60 percent 
C) 11.54 percent 
D) 10.59 percent 
E) 12.30 percent

One example of a nondiversifiable risk is the sudden:

A portfolio is comprised of 100 shares of Stock A valued at $22 a share,600 shares of Stock B valued at $17 each,400 shares of Stock C valued at $46 each,and 200 shares of Stock D valued at $38 each.What is the portfolio weight of Stock C?

The market has an expected rate of return of 9.8 percent.The long-term government bond is expected to yield 4.5 percent and the U.S.Treasury bill is expected to yield 3.4 percent.The inflation rate is 3.1 percent.What is the market risk premium?

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in the:

If the covariance of Stock A with Stock B is .20,then what is the covariance of Stock B with Stock A?

The expected return on a portfolio:

The variance of a portfolio comprised of many securities is primarily dependent upon the:

Zelo stock has a beta of 1.23.The risk-free rate of return is 2.86 percent and the market rate of return is 11.47 percent.What is the amount of the risk premium on Zelo stock?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

Filters

Exam 11: Return, risk, and the Capital Asset Pricing Model Capm

One example of a nondiversifiable risk is the sudden:

A portfolio is comprised of 100 shares of Stock A valued at $22 a share,600 shares of Stock B valued at $17 each,400 shares of Stock C valued at $46 each,and 200 shares of Stock D valued at $38 each.What is the portfolio weight of Stock C?

The market has an expected rate of return of 9.8 percent.The long-term government bond is expected to yield 4.5 percent and the U.S.Treasury bill is expected to yield 3.4 percent.The inflation rate is 3.1 percent.What is the market risk premium?

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in the:

If the covariance of Stock A with Stock B is .20,then what is the covariance of Stock B with Stock A?

The expected return on a portfolio:

The variance of a portfolio comprised of many securities is primarily dependent upon the:

Zelo stock has a beta of 1.23.The risk-free rate of return is 2.86 percent and the market rate of return is 11.47 percent.What is the amount of the risk premium on Zelo stock?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

Filters