Finance Quiz

Determine the value of the Coldron shares.

$62.79

You own a portfolio equally invested in risk-free asset and two stocks.

0.6

An investor divides her portfolio equally into three parts, with one part in Treasury bills, one part in a market index, and one part in a diversified portfolio with beta of 1.50. What is the beta of the investor's overall portfolio?

0.83

You hold a diversifiable portfolio worth $10,000.

1.165

The common stock of Jensen Shipping has an expected return of 15.4 percent. The return on the market is 11.2 percent, the inflation rate is 3.1 percent, and the risk-free rate of return is 3.6 percent. What is the beta of this stock?

1.38

Your friend is asking you for help, He would like to know the standard deviation of the returns of his portfolio. Graph

1.5%

Company A's stock has an estimated beta of 1.3

1.50

Company A's Stock has an estimated beta of 1.4

10.0%

Calculate the risk premium on stock C given the following information: risk-free rate = 5%, market return = 13%, stock C beta = 1.3.

10.4%

In a year in which common stocks offered an average return of 18%,

11%

What is the expected return on Asset A if it has a beta of 0.6

11.4%

You own a portfolio that has $2,800 invested in Stock A

11.8%

A firm is expected to pay a dividend of $3.50 per share in on year.

12.22%

treasury bills currently have a return of 2.5% and the market risk premium is &7%.

12.3%

What is the standard deviation of a portfolios return if the mean return is 15%

13.56%

What is the approximate standard deviation of return if over the past 4 years

14%

You have $21,600 to invest in a stock portfolio.

15329

What rate of return should an investor expect for a stock that has a beta of 1.25 when the market is expected to yield 14% and Treasury bills offer 6%?

16.0%

Company X has 2 million shares of common stock outstanding at a book value of $2 per share. The stock trades for $3 per share. It also has $2 million in face value of debt that trades at 90% of par. What is the weight of debt for WACC purposes?

23.1%

An investor is considering investing in Tawari company for one year.

28

What is the percentage of return on a stock that was purchased for $50.00, paid $3.00 dividend after on year

4%

A firm sold a 10 - year bond issue 3 years ago. The bond has a 6.45% annual coupon and a $1,000 face value. The coupons are paid semi-annually. If the current market price of the bond is $951.64 and the tax rate is 35%, what is the after-tax cost of debt?

4.77%

You would like to combine a risky stock with a beta of 1.76 with U.S. Treasury bills

43%

A company has a bond issue outstanding that has a 8% coupon

5.51%

Lewis, Schultz, and Nobel Development Corp. has an after-tax cost of debt of 4.5%. With a tax rate of 30%, what is the yield on the debt?

5.70%

You own the following portfolio of stocks. What is the portfolio weight of Stock C?

52.18%

Which of the following statements is true for a stock that sells now for $60.

53.33

Julius, Inc., is in a 40% marginal tax bracket. The firm can raise as much capital as needed in the bond market at a cost of 10% yield to maturity. The preferred stock has a fixed dividend of $4.00. The price of preferred stock is $31.50. The after-tax costs of debt and preferred stock are closest to:

6.0, 12.7

Tobin's Barbeque has a bank loan at 8% interest and an after-tax cost of debt of 6%. What will the after-tax cost of debt be if a new loan is taken out yielding 11%.

8.25%

A company has the following data associated with it:

8.46%

The weighted-average cost of capital, after tax, for a firm with a 65/35

8.63%

Suppose the common stock of United Industries has a beta of 1.28 and an expected return of 15.47 percent. The risk-free rate of return is 3.7 percent while the inflation rate is 4.2 percent. What is the expected market risk premium?

9.20%

Billick Brothers is estimating its WACC. The company has collected the following information: What is the company's WACC?

9.66%

Which of the following is a characteristic of beta

A beta of less than 1.0 has less risk than the market.

Which one of the following is the best example of a diversifiable risk?

A firms sales decrease

The managers at Kenforest Grocers are trying to determine the company's optimal capital budget for the upcoming year. Kenforest is considering the following projects:

ABCF

Which of the following statements is true?

Assets with returns that are totally uncorrelated, if included in an investment portfolio, provide some risk reduction

Which of the following would decrease a portfolios systematic risk

Common stock with positive beta is sold and replaced with TB

As a senior financial advisor

Debby

Ed Lawrance

Ed has 30% of his portfolio invested in stocks

Investments with low return variances usually

Have realized returns close to expected returns

The____ the beta coefficient the _____ the expected return, on average.

Higher;Higher

You invested 40%

I and II

Which of the following statements concerning risk are correct

I and III only

Which of the following are examples of diversifiable risk?

I and IV only

Forming a well-diversified portfolio can reduce which of the following?

I and V

Which of the following statements is most correct

If the market risk premium increases by 1 percentage point, then the required return will increase by 1 percentage point for a stock that has a beta equal to 1.0

Why is the after-tax cost of debt normally lower than the after-tax cost of preferred stock?

Interest on debt is tax-deductuble.

Analysts worldwide have revised their projections for Datron Crop.

Investors will buy Datron, pushing up its stock price until its expected return equals the 6% required return

A firm that uses its WACC as a cutoff without consideration of project risk

Likely will see its WACC rise over time

If the beta of your portfolio is between 0.5 and 0.9, what does this imply about

Lower than the systemic risk of the market portfolio

With the subjective approach to divisional cost of capital, the firm's weighted average cost of capital is applied to projects with

Normal or average risk

Steve has invested in twelve different stocks that have a combined value today of $121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following?

Portfolio weight of Wise Man Foods

The major benefit of diversification is the:

Reduce the expected risk

Hanson Aluminum Inc is considering whether to build a mill based around a new technology the company has been developing. Management views this project as being riskier than the average project the company undertakes. Based on their analysis of the projected cash flows, management determines that the projects internal rate of return is equal to the company's cost of capital. If the project goes forward, the company will finance it with newly issued debt with an after-ta cost less than the project's IRR. Should management accept or reject this project?

Reject, because the project reduces the value of the company when its risk is taken into account

Datem Corp. has an expected return of 11%.

Required return of 8.6% above

which of the following risks would be classified as a non-systematic risk for an auto manufacturer

Steel Prices

Holding everything else equal, which one of the following should earn the highest risk premium based on CAPM?

Stock with a beta of 1.38

Assume that the security market line is based on a risk=free rate of 5%

The SML will shift up and have a steeper slope

Which of the following is true regarding WACC

The WACC is the required return on any investment a firm makes that has a level of risk equal to that of present operations

The common stock of Alpha Manufacturers has a beta of 1.24 and an actual expected return of 13.25 percent. The risk-free rate of return is 3.7 percent and the market rate of return is 11.78 percent. Which one of the following statements is true given this information?

The actual expected stock return indicates the stock is currently overpriced.

Which of the following statement about equity beta is true

The slope of the security market line measures a security's beta

Which of the following portfolios might be expected to exhibit less unsystematic risk

Thirty random stocks; portfolio beta unknown

Over the past 75 years, which of following investments has provided the largest average return?

Treasury Bonds

Select the statement that is most correct

When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are tax deductible

The last annual dividend of Compton Inc.

Yes--new stock price should more to $71.19 an increase over its current price

Which one of the following indicates a portfolio is being effectively diversified

a decrease in the portfolio return standard deviation

Which one of the following indicated a portfolio is being effectively diversified?

a decrease in the portfolio return standard deviatoion

Given the following historical returns, what is the standard deviation?

about 16%

With the capital asset pricing model

beta measures the risk of an individual stock relative to a market index

The return standard deviation of a portfolio:

can be less than the return standard deviation of the least risky security in the portfolio

A stock has been held for one year, during which time its dividend yield was greater than its capital gains yield. For this stock, the percentage return:

cannot be determined

The cost of preferred stock is equal to the preferred stock dividend

divided by the market value

The standard deviation of individual stocks are generally higher than the standard deviation of the market portfolio because individual stocks:

have more diversifiable risk

If beta of your portfolio is between 1.5 and 1.85, what does this imply about your portfolio's systemic risk relative to that of the market portfolio

higher than the systematic risk of the market portfolio.

A firm is considering an investment in a project whose risk is greater than the current risk of the firm

increase the cost of capital used to evaluated the project to reflect the projects higher risk

What would you recommend to an investor who is considering an investment that

invest; return is high relative to risk

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

investor panic causing security prices to fall

Which of the following is most directly affected by the level of systematic risk in security?

its expected rate of return

The key to efficient diversification is to build a portfolio of securities that are:

less than perfectly correlated with one another

If Treasury bills are yielding 10% at a time when the market risk premium is 6%, then the:

market portfolio should yield 16%

The expected rate of return on a stock portfolio is a weighted average of expected returns of each stock in the portfolio, where the weights are based on the:

market value of the investment in each stock

If a stock portfolio is well diversified, then the portfolio variance:

may be less than the return variance of the least risky stock in the portfolio

The primary purpose of portfolio diversification is to:

minimize idiosyncratic risk

Which one of the following is an example of unsystematic risk

national decrease in consumer spending on entertainment

What is the expected return on the market portfolio at a time when the Treasury bills yield 6% and a stock with a beta of 1.4 is expected to yield 18%?

none of these are correct

You can choose to invest in two different portfolios. Portfolio 1 includes stock X

none of these are correct

You can choose to invest in two different portfolios.

none of these choices are correct

Which one of the following statements is correct concerning unsystematic risk?

normal or average risk

With the subjective approach to divisional cost of capital

normal or average risk

If a security plots below the security market line, it is:

offering too little return to justify its rusk

Assets whose returns are negatively correlated

reduce the return standard deviation of the portfolio

What will happen to the expected return on a stock with a beta of 1.5

the expected return will increase by 2.0%

When calculating the weighted average cost of capital an adjustment is made for taxes because

the interest on debt is tax deductible

For a firm paying 5% for new debt, the higher the firm's tax rate

the lower the after-tax cost of debt

The intercept point of the security market line is the rate of return which corresponds to:

the risk-free rate

The standard deviation for historical stock returns can be calculated as

the square root of the variance

A news flash just appeared that caused about a dozen stocks to suddenly drop in value by about 20 percent. What type of risk does this news flash represent?

unsystematic

The variance of an investments returns is measure of the

volatility of the rate of returns