cakers1192

if the financial markets are semi-strong form efficient, then:

only individuals with private information have a marketplace advantage

The operating cash flows for each firm are identical except for the depreciation effect. Given this, you know the:

operating cash flow of Firm A is less than that of Firm B for year two

Stock A comprises 28% of Susan's portfolio. Which one of the following terms applies to the 28%

portfolio weight

the tax shield approach to computing the operating cash flow, given a tax paying firm

recognized that depreciation creates a cash inflow

The net working capital invested in a project is generally

recouped at the end of the project

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 portfolio's unique risks

Which one of the following descries systemic risk

risk that affects a large number of assets

Which one of the following categories has the widest frequency distribution of return for the period 1926-2008

small company stocks

which one of the following is the most apt to have the largest risk premium in the future based on the historical record for 1926-2008

small company stocks

Over the period of 1926-2008, which one of the following investment classes had the highest volatility of returns

small-company stocks

If the financial markets are efficient then

stock prices should only respond to unexpected news and events

World United stock currently plots on the security market line and has a beta of 1.04. Which one of the following will increase that stock's rate of return without affecting the risk level of the stock, all else constant

increase in the market risk-to-reward ratio

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

expected return and beta

A risky security has less risk than the overall market. What must the beta of this security be

greater than 0 but less than 1

Which one of the following best describes a portfolio

group of assets held by an investor

the operating cash flows of a project

include erosion effects

over the period of 1926-2008

long-term government bonds underperformed long-term corporate bonds

the lower the standard deviation of returns on security the BLANK the expected rate of return and the BLANK the risk

lower; lower

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

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

more; overpriced

Assume you own a portfolio of diverse securities which are each correctly priced. Given this, the reward-to-risk ratio:

of each security must equal the slope of the security market line

the historical returns on large-company stocks, as reported by Ibbotson and Sinquefield and reported in your textbook, are based on the:

stocks of the 500 companies included in the S&P 500 Index

Dan is a chemist for ABC. Dan cannot earn excess profits on ABC stock based on the knowledge related to his experiments if the financial markets are

strong form efficient

Which one of the following best exemplifies unsystematic risk (2)

unexpected increase in the variable costs for a firm

Portfolio diversification eliminates which one of the following

unsystematic risk

Which one of the following defines the opportunity cost of the remodeling project

Current market value of the building

Which one of the following is the hypothesis that securities markets are efficient

Efficient markets hypothesis

Which one of the following terms is most commonly used to describe the cash flows of a new project that are simply an offset of reduced cash flows for a current project

Erosion

The Shoe Box is considering adding a new line of winter footwear to its product line-up. Which of the following are relevant cash flows for this project

1.) Decreased revenue 2.) revenue from the new line 4.) cost of new counters

Which of the following terms can be used to describe unsystematic risk

1.) asset-specific risk 2.) diversifiable risk 4.) unique risk

Which of the following should be included in the analysis of a proposed investment

1.) erosion effects 2.) opportunity costs 3.) side effects

Which of the following are cash inflows from net working capital

1.) increase in accounts payable 3.) decrease in accounts receivable

Based on the capital asset pricing model, investors are compensated based on which of the following

1.) market risk premium 3.) portfolio beta 4.) risk-free rate

Lake City Plastics currently produces plastic and silverware. The company is considering expanding its product offerings to include plastic serving trays. Which of the following are cash flows relevant to the new product

1.) molds needed to form 2.) projected increase in plate 4.) raw materials used in the production

the expected return on a security depends on which of the following

1.) risk-free rate of return 3.) market rate of 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

An efficient capital market is best defined as a market in which security prices reflect which one of the following

Available information

Any changes to a firm's projected future cash flows that are caused by adding a new project are referred to as

Incremental Cash Flows

Which one of the following is defined as a bell-shaped frequency distribution that is define by its average and it standard deviation

Normal Distribution

Which one of the following terms refers to the best options that was foregone when a particular investment is selected

Opportunity Cost

investors require a 4% return on risk-free investments. On a particular risky investment, investors require an excess return of 7% in addition to the risk-free rate of 4% What is this excess return called

Risk Premium

Which one of the following is the vertical intercept of the security market line

Risk-free rate

Which one of the following principles refers to the assumption that a project will be evaluated based on its incremental cash flows

Stand-alone principle

A cost that should be ignored when evaluating a project because that cost has already been incurred and cannot be recouped to as which type of cost

Sunk

The historical record for the period 1926-2008 shows that the annual nominal rate of return on:

U.S. Treasury Bills have had a positive rate of return for every year in the period

Which one following had the lowest standard deviation of returns for the period of 1926-2008

U.S. Treasury bill

the rate of return on which one of the following is used as the risk-free rate

U.S. Treasury bill

A proposed project will increase a firm's accounts payables. This increase is generally:

a cash inflow at time zero and a cash outflow at the end of the project

Which one of the following portfolios will have a beta of zero

a portfolio comprised solely of U.S. Treasury bills

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 one of the following is the best example of unsystematic risk

a warehouse fire

The variance is the average squared difference between which of the following

actual return and average return

Semi-strong form market efficiency states that the value of a security is based on

all publicly available information

Which one of the following statements is correct

an underpriced security will plot above the security market line

Which one of the following measures the amount of systematic risk present in a particular risky asset relative to that in an average risky asset

beta coefficient

the capital asset pricing model

considers the time value of money

which one of the following will increase the operating cash flow as computed using the tax shield approach

decrease in fixed costs

which one of the following is the best example of systematic risk

decrease in gross domestic product

Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means or reducing risk

diversification

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

systematic

The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the depreciation

tax shield

What value should be included in the analysis of the expansion project for the cost of the land

the current market value of the land

Which one of statements is correct

the higher the expected rate of return, the wider the distribution of returns

When analyzing the renovation project, what opportunity cost, if any should be included for the current restaurant

the opportunity cost is the value of the current offer to buy the restaurant

Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient

the price of New Labs stock increases rapidly to a higher price and then remains at that price

the average risk premium on long-term government bonds for the period 1926-2008 was equal to:

the rate of return on the bonds minus the T-bill rate

over the period of 1926-2008 (risk premium)

the risk premium on stocks exceeded the risk premium on bonds

Standard deviation measures BLANK risk while beta measures BLANK risk

total; systematic