FIN EXAM 2 Pt. 2
_________ measures the amount of systemic risk present in a particular risky asset relative to the systematic risk present in an average risky asset
Besta
Which of the following statements regarding unsystematic risk is accurate
It can be effectively eliminated by portfolio diversification
Which of the following statements is true of a portfolio's standard deviation
It can be less than the weighted average of the standard deviations of the individual securities held in the portfolio
A _______________ is the markets measure of systematic risk
beta of 1
A firms aftertax cost of debt will increase if there is a(n)
decrease in the company's tax rate
When evaluating any capital project proposal, the cost of capital...
depends upon how the funds raised for that project are going to be spent.
To determine a firms cost of capital, one must include
the returns currently required by both debt holders and stockholders
An investor wants to reduce the unsystematic risk in her portfolio. Which of the following actions is least likely to do so
Reducing the number of stocks held on her stock portfolio
Most financial securities have some level of ____________ risk
Systematic
Which of the following statements best describes the principle of diversification q
Spreading an investment across many diverse assets will eliminate some of the total risk
Assume the firm utilizes the security market line (SML) approach to determine the cost of equity. If the firm currently pays an annual dividend of $2.40 per share and has a beta of 1.42, all else constant, which of the following actions will decrease the firms cost of equity.
a decrease in the firms beta
To calculate the expected risk premium on a stock, one must subtract the __________ from the stocks expected return
risk-free rate
For any given capital project proposal, the discount rate should be based on the
risks associated with the use of the funds required by the project
When determining a firm's weighted average cost of capital, the item with the least amount of impact is the
standard deviation of the company's common stock
Of the options listed below, which is the best example of systemic risk.
Investors panic causing security prices around the globe to fall precipitously
Which of the following statements regarding the weighted average cost of capital is accurate
it is the return investors require on the total assets of the firm
When determining the firms cost of capital the most important determinant is the
use of the funds raised