Question 1

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

Accepted Answer

A)  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. 
B)  The beta of "the market," can change over time,sometimes drastically. 
C)  Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. 
D)  There is a wide confidence interval around a typical stock's estimated beta. 
E)  Sometimes a security or project does not have a past history which can be used as a basis for calculating beta. 
A)  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. 
B)  The beta of "the market," can change over time,sometimes drastically. 
C)  Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. 
D)  There is a wide confidence interval around a typical stock's estimated beta. 
E)  Sometimes a security or project does not have a past history which can be used as a basis for calculating beta.

Question 2

The SML relates required returns to firms' systematic (or market)risk.The slope and intercept of this line can be influenced by managerial actions.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)  The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is about 0.6. 
B)  The typical R2 for a stock is about 0.3 and the typical R2 for a large portfolio is about 0.94. 
C)  The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is also about 0.94. 
D)  The typical R2 for a stock is about 0.6 and the typical R2 for a portfolio is also about 0.6. 
E)  The typical R2 for a stock is about 0.3 and the typical R2 for a portfolio is also about 0.3. 
A)  The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is about 0.6. 
B)  The typical R2 for a stock is about 0.3 and the typical R2 for a large portfolio is about 0.94. 
C)  The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is also about 0.94. 
D)  The typical R2 for a stock is about 0.6 and the typical R2 for a portfolio is also about 0.6. 
E)  The typical R2 for a stock is about 0.3 and the typical R2 for a portfolio is also about 0.3.

Question 4

A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium.The required rate of return on the stock is 15% versus a required return on an average stock of 10%.Now the required return on an average stock increases by 30.0% (not percentage points).The risk-free rate is unchanged.By what percentage (not percentage points)would the required return on your stock increase as a result of this event?

Accepted Answer

A)  36.10% 
B)  38.00% 
C)  40.00% 
D)  42.00% 
E)  44.10% 
A)  36.10% 
B)  38.00% 
C)  40.00% 
D)  42.00% 
E)  44.10%

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A)  The slope of the CML is (
  M − rRF)/bM. 
B)  All portfolios that lie on the CML to the right of σM are inefficient. 
C)  All portfolios that lie on the CML to the left of σM are inefficient. 
D)  The slope of the CML is (
  M − rRF)/σM. 
E)  The Capital Market Line (CML)is a curved line that connects the risk-free rate and the market portfolio. 
A)  The slope of the CML is (
  M − rRF)/bM. 
B)  All portfolios that lie on the CML to the right of σM are inefficient. 
C)  All portfolios that lie on the CML to the left of σM are inefficient. 
D)  The slope of the CML is (
  M − rRF)/σM. 
E)  The Capital Market Line (CML)is a curved line that connects the risk-free rate and the market portfolio.

Question 6

You are given the following returns on "the market" and Stock F during the last three years.We could calculate beta using data for Years 1 and 2 and then,after Year 3,calculate a new beta for Years 2 and 3.How different are those two betas,i.e. ,what's the value of beta 2 − beta 1? (Hint: You can find betas using the Rise-Over-Run method,or using your calculator's regression function. )
Year
Market
Stock F
1
6)10%
6)50%
2
12)90%
−3)70%
3
16)20%
21)71%

Accepted Answer

A)  7.89 
B)  8.30 
C)  8.74 
D)  9.20 
E)  9.66 
A)  7.89 
B)  8.30 
C)  8.74 
D)  9.20 
E)  9.66

Question 7

If the returns of two firms are negatively correlated,then one of them must have a negative beta.

Accepted Answer

A) True 
 B)False

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

The SML relates required returns to firms' systematic (or market)risk.The slope and intercept of this line can be influenced by managerial actions.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

If the returns of two firms are negatively correlated,then one of them must have a negative beta.

An Overview of Financial Management and the Financial Environment

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk and Return

Corporate Valuation and Stock Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Financial Planning and Applications to Corporate Valuation

Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Dynamic Capital Structures and Corporate Valuation

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, Reorganization, and Liquidation

Real Options

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

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Exam 25: Portfolio Theory and Asset Pricing Models

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

The SML relates required returns to firms' systematic (or market)risk.The slope and intercept of this line can be influenced by managerial actions.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

If the returns of two firms are negatively correlated,then one of them must have a negative beta.

An Overview of Financial Management and the Financial Environment

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk and Return

Corporate Valuation and Stock Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Financial Planning and Applications to Corporate Valuation

Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Dynamic Capital Structures and Corporate Valuation

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, Reorganization, and Liquidation

Real Options

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

Filters