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| 1. Which of the following is true regarding market risk? (Points : 1)
[removed] It is measured by beta. [removed] It is also called nondiversifiable risk. [removed] It is also called systematic risk. [removed] all of the above |
| [removed][removed][removed][removed]2. If an investor purchases a share of stock for $300, collects a dividend during the year equal to $35 a share, and sells the stock at the end of the year for $289, what is the investor’s return for the year? (Points : 1)
[removed] 12.11% [removed] 8.30% [removed] 8.00% [removed] 15.33% |
| 3. One reason why we are not concerned with idiosyncratic risk (also called firm-specific risk) is that: (Points : 1)
[removed]most risk is not firm-specific, so we can ignore it. [removed]through hedging and insurance, investors may now invest in stocks with almost no risk exposure of any kind. [removed]it is easy and almost costless to diversify one’s portfolio and eliminate idiosyncratic risk. [removed]investing in bonds can offset the idiosyncratic risks of shares of stock. |
| 4. Beta is estimated as the slope of a regression line fit to pairs of periodic returns, (rx, ry), where: (Points : 1)
[removed]rx is the return for a market index such as the S&P 500 Index. [removed]rxis the return for the stock being analyzed—for example, IBM’s return if we are estimating IBM’s beta. [removed]the slope measures the average return for the market portfolio for each percentage change in the value of the security of interest. [removed]ryis the return for the market index such as the S&P 500 Index. |
| 5. The financing mix reflected in the WACC should: (Points : 1)
[removed]reflect the desired mix and not necessarily the mix being used to finance a specific project. [removed]vary from project to project, depending on how they are financed. [removed]always reflect the firm’s current capital structure. [removed] None of these answers is correct. |
| 6. Which of the following best describes a pure-play? (Points : 1)
[removed]a private firm that is held in isolation in a one-company investment portfolio [removed] a publicly traded firm that is similar to the company or project being analyzed [removed] Both a and b are correct. [removed] Neither a nor b is correct. |
| 7. Which of the following is beta is used for? (Points : 1)
[removed] estimating a regression line [removed] estimating a firm’s total risk to be used in the WACC [removed] estimating a firm’s market risk and used with the CAPM [removed] estimating the amount of leverage used by the firm |
| 8. The Hamada Equation allows the firm to: (Points : 1)
[removed]solve for a company’s total risk. [removed]adjust the beta of a pure-play firm for its use of debt financing. [removed]estimate its asset beta. [removed] Both b and c are correct. |
| 9. Which of the following statements regarding the cost of debt is true? (Points : 1)
[removed] The cost of debt for bonds equals the coupon rate of outstanding bonds. [removed] The cost of debt for bonds is found by dividing the price by the annual coupon. [removed] The cost of debt for bonds is found by calculating their yield to maturity. [removed] The cost of debt equals the flotation costs charged by investment bankers who advise the firm. |
| 10. Chapter 9 discusses three different types of returns. Identify the item in the list below that is NOT one of those three types of returns. (Points : 1)
[removed] the actual rate of return [removed] the expected rate of return [removed] the risk-free rate of return [removed] the required rate of return |
