Finance - Final Review

which of the following indicates that a project is expected to create value for its owners

positive net present value

Diversifying a portfolio across various sectors and industries might do more than one of the following. However, this diversification must do which one of the following?

reduce the portfolios unique risks

the dividend yield on a stock will increase if the:

stock price decreases

Which one of the following represents the amount of compensation an investor should expect to receive for accepting the unsystematic risk associated with an individual security?

Zero

The security market line is defined as a positively sloped straight line that displays the relationship between which two of the following variables?

expected return and beta

the security market line is defined as a positively sloped straight line that displays the relationship between the:

expected return and beta of either a security or a portfolio.

Which one of the following is an example of systematic risk?

increase in consumption created by a reduction in personal tax rates.

unsystematic risk can be defined by all of the following except

market risk

The addition of a risky security to a fully diversified portfolio:

may or may not affect the portfolio beta

Systematic risk is

measured by beta

If a security plots to the right and below the security market line, then the security has ____ systematic risk than the market and is ____.

more; overpriced

Portfolio diversification eliminates:

unsystematic risk

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as:

working capital management

Which one of the following is the best example of systematic risk?

Decrease in gross domestic product

The security market line is a linear function that is graphed by plotting data points based on the relationship between which two of the following variables?

Expected Return and Beta

The expected return on a security depends on which of the following I. Risk-free rate of return II. Amount of the security's unique risk III. Market rate of return IV. Standard deviation of returns

I and III only

Which of the following terms can be used to describe unsystematic risk? I. Asset-specific Risk II. Diversifiable Risk III. Market Risk IV. Unique Risk

I, II, and IV only

Which one of the following statements is correct?

If a risky security is correctly priced, its expected risk premium will be positive.

Mary owns a risky stock and anticipates earning 16.5 percent on her investment in that stock. Which one of the following best describes the 16.5 percent rate?

expected return

Based on the capital asset pricing model, which one of the following must increase the expected return on an individual security, all else constant?

A decrease in the risk free rate given a security beta of 1.06

Which one of the following statements related to the security market line is correct?

A security with a beta of 1.54 will plot on the security market line if it is correctly priced.

which of the following is the best example of unsystematic risk?

A warehouse fire

which statement is true

All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.

which one of the following statements is correct

If the internal rate of return equals the required return, the net present value will equal zero.

The systematic risk principle states that the expected return on a risky asset depends only on which one of the following?

Market Risk

Which one of the following is the slope of the security market line?

Market Risk Premium

dividends are

Paid out of aftertax profits

Which one of the following describes systemic risk?

Risk that affects a large number of assets.

Which one of the following is the best example of an announcement that is most apt to result in an unexpected return?

Statement by a firm that it has just discovered a manufacturing defect and is recalling its product

Portfolio diversification eliminates which one of the following?

Unsystematic Risk

a portfolio is

a group of assets held by an investor

The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships are:

a perpetuity

which of the following applies to a general partnership

any one of the partners can be held solely liable for all of the partnerships debt

systematic risk is defined as

any risk that affects a large number of assets.

standard deviation measures ______ risk, while beta measures ______ risk

asset specific, market

The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is measured by the:

beta coefficient

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's:

capital structure

Which type of stock pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred?

cumulative preferred

the goal of financial management is to increase the:

current market value per share

An agent who buys and sells securities from inventory is called a:

dealer

The risk premium for an individual security is based on which one of the following types of risk?

systematic

The beta of a risky portfolio cannot be less than _____ nor greater than ____.

the lowest individual beta in the portfolio; the highest individual beta in the portfolio

When valuing a stock using the constant-growth model, D1 represents the:

the next expected annual dividend

which statement is true?

the weights of securities held in any portfolio must equal zero.