Financial policy final

A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the _____ distribution. Multiple Choice gamma Poisson bimodal normal uniform

normal

One example of a nondiversifiable risk is the sudden: Multiple Choice resignation of a well-respected president of a firm. outbreak of a global virus. resignation of a key employee of a major manufacturer. replacement of a firm's workforce with robots. closing of a business due to a lack of sales.

outbreak of a global virus.

Of the following choices, which one generally has the greatest impact on a firm's PE ratio?

futures opportunity

The average compound return earned per year over a multi-year period is called the _____ average return. Multiple Choice arithmetic standard variant geometric real

geometric

One year ago, you purchased 440 shares of Titan Wood Products for $68.75 per share. The stock has paid dividends of $.77 per share over the past year and is currently priced at $73.86. What is your total dollar return on your investment? Multiple Choice $2,673.44 $2,248.40 $2,417.80 $2,587.20 $1,293.60

$2,587.20

Santa Klaus Toys just paid a dividend of $3.00 per share. The required return is 11.7 percent and the perpetual dividend growth rate is 3.9 percent. What price should this stock sell for five years from today? Multiple Choice $50.27 $44.82 $38.46 $48.39 $46.57

$48.39 - P5=D6/(r-g)=D0*(1+g)^6/(r-g)=3*(1+3.9%)^6/(11.7%-3.9%)=48.3860241

You have $14,400 to invest and would like to create a portfolio with an expected return of 9.95 percent. You can invest in Stock K with an expected return of 8.5 percent and Stock L with an expected return of 12.1 percent. How much will you invest in Stock K? Multiple Choice $8,600.00 $5,800.00 $7,733.33 $5,075.00 $7,883.33

$8,600.00

Stock A is expected to return 12 percent in a normal economy and lose 7 percent in a recession. Stock B is expected to return 8 percent in a normal economy and 2 percent in a recession. The probability of the economy being normal is 80 percent and the probability of a recession is 20 percent. What is the covariance of these two securities? Multiple Choice .001824 .004115 .003280 .003876 .003915

.001824

You decide to invest in a portfolio consisting of 22 percent Stock A, 51 percent Stock B, and the remainder in Stock C. Based on the following information, what is the variance of your portfolio? State of EconomyProbability of State of EconomyReturn if State OccursStock AStock BStock CRecession.118−10.50%−3.90%−12.90%Normal.6739.80%10.74%17.30%Boom.20921.63%25.27%29.97% Multiple Choice .00962 .01149 .00792 .00894 .00851

.00851

Based on the following information, what is the variance? State of EconomyProbability of State of EconomyRate of Return if State OccursRecession.31−10.30%Normal.3411.80%Boom.3522.80% Multiple Choice .01848 .08644 .02771 .13592 .03695

.01848

You have a portfolio that is invested 18 percent in Stock R, 42 percent in Stock S, and the remainder in Stock T. The beta of Stock R is .77, and the beta of Stock S is 1.32. The beta of your portfolio is 1.09. What is the beta of the Stock T? Multiple Choice 1.09 .99 1.26 .85 1.05

.99

Your portfolio is composed of 30 percent of Stock X, 50 percent of Stock Y, and 20 percent of Stock Z. Stock X has a beta of .64, Stock Y has a beta of 1.48, and Stock Z has a beta of 1.04. What is the portfolio beta? Multiple Choice 1.01 1.05 1.09 1.14 1.18

1.14

Kindzi Company has preferred stock outstanding that is expected to pay an annual dividend of $4.53 every year in perpetuity. If the required return is 4.44 percent, what is the current stock price? Multiple Choice $102.03 $95.23 $97.69 $106.56 $91.82

102.03 - The current stock price is computed as shown below: = Annual Dividend / required rate of return = $ 4.53 / 0.0444 = $ 102.03 Approximately

You purchased 1,600 shares of stock in Natural Chicken Wings, Incorporated, at a price of $43.73 per share. Since you purchased the stock, you have received dividends of $1.19 per share. Today, you sold your stock at a price of $47.91 per share. What was your total percentage return on this investment? Multiple Choice 13.97% 12.28% 9.56% 10.92% 13.10%

12.28%

The stock of Foreman's has a beta of 1.38 and an expected return of 16.26 percent. The risk-free rate of return is 3.42 percent. What is the expected return on the market? Multiple Choice 7.60% 8.04% 9.30% 12.72% 12.16%

12.72%

The risk-free rate is 3.6 percent and the market expected return is 11.7 percent. What is the expected return of a stock that has a beta of 1.21? Multiple Choice 19.24% 11.91% 17.76% 15.58% 13.40%

13.40%

A stock had returns of 17.27 percent, −11.12 percent, 22.72 percent, and 13.55 percent for the past four years. What is the standard deviation of the returns? Multiple Choice 14.96% 11.97% 2.24% 13.47% 22.39%

14.96%

The probability the economy will boom is 10 percent while the probability of a recession is 20 percent. Stock A is expected to return 15 percent in a boom, 9 percent in a normal economy, and lose 14 percent in a recession. Stock B should return 10 percent in a boom, 6 percent in a normal economy, and 2 percent in a recession. Stock C is expected to return 5 percent in a boom, 7 percent in a normal economy, and 8 percent in a recession. What is the standard deviation of a portfolio invested 20 percent in Stock A, 30 percent in Stock B, and 50 percent in Stock C? Multiple Choice .6% .9% 1.8% 2.2% 4.9%

2.2%

You purchased a stock at a price of $38.52. The stock paid a dividend of $1.35 per share and the stock price at the end of the year is $43.87. What was the dividend yield? Multiple Choice 13.89% 3.50% 17.39% 3.86% 4.21%

3.50%

Red Sun Rising just paid a dividend of $2.07 per share. The company said that it will increase the dividend by 15 percent and 10 percent over the next two years, respectively. After that, the company is expected to increase its annual dividend at 3.3 percent. If the required return is 10.3 percent, what is the stock price today? rev: 03_31_2022_QC_CS-301591 Multiple Choice $10.00 $31.76 $36.07 $35.00 $33.92

36.07

Ghost Riders Company has an EPS of $1.60 that is expected to grow at 8 percent per year. If the PE ratio is 18.65 times, what is the projected stock price in 7 years? Multiple Choice $47.35 $44.69 $53.19 $55.23 $51.14

51.14 - EPS for year 7=Current EPS*(1+Growth rate)^7 =1.6*(1.08)^7 =1.6*1.71382427 =$2.74211883 P/E ratio=stock price/EPS Hence stock price would be=2.74211883*18.65

What are the arithmetic and geometric average returns for a stock with annual returns of 16 percent, 9 percent, −6 percent, and 14 percent? Multiple Choice 7.89%; 8.25% 11.18%; 7.89% 11.18%; 8.25% 8.25%; 7.89% 8.25%; 11.18%

8.25%; 7.89%

With respect to the CAPM, which one of the following statements is correct? Multiple Choice The CAPM is the only available method for determining an appropriate discount rate for a proposed project. The market rate of return is most commonly based on the forecasted return on the market for the next 5-year period. CAPM is used quite frequently by firms in their capital budgeting processes. The expected return on the 30-year U.S. Treasury bond is the most commonly used as the risk-free rate of return. An increase in the risk-free rate combined with a beta greater than 1.0 increases the discount rate computed using the CAPM.

CAPM is used quite frequently by firms in their capital budgeting processes.

Which one of the following is a correct ranking of securities based on their volatility during the period from 1926 to 2020? Rank from highest to lowest volatility. Multiple Choice Large-company stocks, intermediate-term government bonds, long-term government bonds Small-company stocks, long-term corporate bonds, large-company stocks Long-term government bonds, long-term corporate bonds, small-company stocks Small-company stocks, large-company stocks, long-term corporate bonds Long-term corporate bonds, large-company stocks, U.S. Treasury bills

Small-company stocks, large-company stocks, long-term corporate bonds

Which one of the following statements is correct concerning the expected rate of return on an individual stock given various states of the economy? Multiple Choice The expected return is a geometric average where the probabilities of the economic states are used as the exponential powers. The expected return is an arithmetic average of the individual returns for each state of the economy. The expected return is a weighted average where the probabilities of the economic states are used as the weights. The expected return is equal to the summation of the values computed by dividing the expected return for each economic state by the probability of the state. As long as the total probabilities of the economic states equal 100 percent, then the expected return on the stock is a geometric average of the expected returns for each economic state.

The expected return is a weighted average where the probabilities of the economic states are used as the weights.

Nasdaq: Multiple Choice has a single trading floor located in Chicago, Illinois. has multiple trading floors. is a designated market maker system. has a multiple market maker system. is closed to all electronic communications networks (ECNs).

has a multiple market maker system.

Which one of the following statements concerning the excess return is correct? Multiple Choice The greater the volatility of returns, the greater the expected excess return. The lower the volatility of returns, the greater the expected excess return. The lower the average rate of return, the greater the excess return. The excess return is not correlated to the average rate of return. The excess return is not affected by the volatility of returns.

The greater the volatility of returns, the greater the expected excess return.

Of the following choices, which one applies to the dividend growth model of stock valuation?

The growth rate must be less than the discount rate.

Which one of the following types of securities produced the lowest real rate of annual return, on average, for the period from 1926 through 2020? Multiple Choice U.S. Treasury bills Long-term government bonds Small-company stocks Large-company stocks Long-term corporate bonds

U.S. Treasury bills

Capital market history shows us that a correct ordering of the average return by asset class, from lowest to highest, is: Multiple Choice corporate bonds, U.S. Treasury bills, small-company stocks, large-company stocks. U.S. Treasury bills, small-company stocks, large-company stocks, government bonds. government bonds, U.S. Treasury bills, large-company stocks, small-company stocks. U.S. Treasury bills, government bonds, large-company stocks, small-company stocks. U.S. Treasury bills, long-term government bonds, intermediate-term government bonds, small-company stock.

U.S. Treasury bills, government bonds, large-company stocks, small-company stocks.

A stop order to sell at $32 will be executed: Multiple Choice at a price of $32 at the end of the day on which the order was placed. at $32 following the first trade with a price below $32. as a market order once a trade occurs at a price of $32 or less. immediately at a price of $32. as a market order once a trade occurs at a price of $32 or higher.

as a market order once a trade occurs at a price of $32 or less.

Enterprise value equals the:

combined market value of debt and equity minus excess cash.

The beta of a security is calculated by dividing the: Multiple Choice covariance of the security return with the market return by the variance of the market. correlation of the security return with the market return by the variance of the market. variance of the market by the covariance of the security return with the market return. variance of the market return by the correlation of the security return with the market return. covariance of the security return with the market return by the correlation of the security and market returns.

covariance of the security return with the market return by the variance of the market.

The ________ equals the annual dividend amount to be paid next year, divided by the current stock price.

dividend yield

Supplemental liquidity providers (SLPs): Multiple Choice act as floor brokers. only represent stock purchasers. seek the best price for their customers. do not operate on the floor of a stock exchange. have been replaced by designated market makers.

do not operate on the floor of a stock exchange.

The portfolio of small-company common stocks measured by Ibbotson, et al. is best described as the stocks of the firms that: Multiple Choice represent the smallest twenty percent of the companies listed on the NYSE. have gone public within the past five years. are too small to be listed on the NYSE. are included in the S&P 500 index. trade publicly for $5 per share or less.

represent the smallest twenty percent of the companies listed on the NYSE.

A stock is expected to maintain a constant dividend growth rate of 4.3 percent indefinitely. If the stock has a dividend yield of 5.6 percent, what is the required return on the stock? Multiple Choice 9.2% 9.9% 8.9% 8.2% 9.4%

required return on the stock=dividend yield +Growth rate which is equal to' =(4.3+5.6) =9.9%

On average, for the period from 1926 through 2020: Multiple Choice the real rate of return on U.S. Treasury bills has been negative. small-company stocks underperformed large-company stocks. long-term government bonds produced higher returns than long-term corporate bonds. the excess return on long-term corporate bonds exceeded the excess return on long-term government bonds. the excess return on large-company stocks exceeded the excess return on small-company stocks.

the excess return on large-company stocks exceeded the excess return on small-company stocks.

The standard deviation of a portfolio will tend to increase when: Multiple Choice a risky asset in the portfolio is replaced with U.S. Treasury bills. one of two stocks related to the airline industry is replaced with a third stock that is unrelated to the airline industry. the portfolio concentration in a single cyclical industry increases. the weights of the various diverse securities become more evenly distributed. short-term bonds are replaced with Treasury Bills.

the portfolio concentration in a single cyclical industry increases.

The underlying assumption of the dividend growth model is that a stock is worth:

the present value of the future income that the stock is expected to generate.