FIN 534 -Week 5 Quiz 4

Question 1
0 out of 2 points

Which of the following statements is CORRECT?

•  Question 2
2 out of 2 points

During the coming year, the market risk premium (rM − rRF), is expected to fall, while the risk-free rate, rRF, is expected to remain the same.  Given this forecast, which of the following statements is CORRECT?

•  Question 3
0 out of 2 points

Which of the following is most likely to occur as you add randomly selected stocks to your portfolio, which currently consists of 3 average stocks?

•  Question 4
2 out of 2 points

Which of the following statements is CORRECT?

•  Question 5
2 out of 2 points

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y.  Both stocks have an expected return of 15%, betas of 1.6, and standard deviations of 30%.  The returns of the two stocks are independent, so the correlation coefficient between them, rXY, is zero.  Which of the following statements best describes the characteristics of your 2-stock portfolio?

•  Question 6
2 out of 2 points

Which of the following statements is
CORRECT?

•  Question 7
2 out of 2 points

A highly risk-averse investor is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolio.  The three stocks currently held all have b = 1.0, and they are perfectly positively correlated with the market.  Potential new Stocks A and B both have expected returns of 15%, are in equilibrium, and are equally correlated with the market, with r = 0.75.  However, Stock A’s standard deviation of returns is 12% versus 8% for Stock B.  Which stock should this investor add to his or her portfolio, or does the choice not matter?

•  Question 8
2 out of 2 points

Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE?

•  Question 9
2 out of 2 points

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5.  Which of the following statements must be true, according to the CAPM?

•  Question 10
2 out of 2 points

Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%.  Becky also has a $50,000 portfolio, but it has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%.  The correlation coefficient, r, between Bob’s and Becky’s portfolios is zero.  If Bob and Becky marry and combine their portfolios, which of the following best describes their combined $100,000 portfolio?

•  Question 11
2 out of 2 points

Stock A’s beta is 1.5 and Stock B’s beta is 0.5.  Which of the following statements must be true, assuming the CAPM is correct.

•  Question 12
2 out of 2 points

Which of the following statements is CORRECT?

•  Question 13
0 out of 2 points

Stock A has an expected return of 12%, a beta of 1.2, and a standard deviation of 20%.  Stock B also has a beta of 1.2, but its expected return is 10% and its standard deviation is 15%.  Portfolio AB has $900,000 invested in Stock A and $300,000 invested in Stock B.  The correlation between the two stocks’ returns is zero (that is, rA,B = 0).  Which of the following statements is CORRECT?

•  Question 14
2 out of 2 points

Which of the following statements is CORRECT?

•  Question 15
2 out of 2 points

Assume that the risk-free rate is 5%.  Which of the following statements is CORRECT?

•  Question 16
2 out of 2 points

An increase in a firm’s expected growth rate would cause its required rate of return to

•  Question 17
2 out of 2 points

Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return.  Which of the following statements is CORRECT?

•  Question 18
0 out of 2 points

A stock is expected to pay a year-end dividend
of $2.00, i.e., D1 = $2.00.  The dividend is expected to decline at a rate of 5% a year forever (g = -5%).  If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?

•  Question 19
2 out of 2 points

Stocks A and B have the following data.  Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A                      B
Price                                                 $25                  $40
Expected growth                               7%                   9%
Expected return                               10%                 12%

•  Question 20
2 out of 2 points

The preemptive right is important to shareholders
because it

•  Question 21
0 out of 2 points

Which of the following statements is CORRECT?

•  Question 22
2 out of 2 points

For a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then

•  Question 23
2 out of 2 points

Which of the following statements is CORRECT?

•  Question 24
2 out of 2 points

If markets are in equilibrium, which of the following conditions will exist?

•  Question 25
2 out of 2 points

If a stock’s dividend is expected
to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

•  Question 26
2 out of 2 points

Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return.  Which of the following statements is CORRECT?

•  Question 27
2 out of 2 points

Stocks A and B have the following data.  Assuming
the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A                      B
Required return                               10%                 12%
Market price                                     $25                  $40
Expected growth                               7%                   9%

•  Question 28
2 out of 2 points

Companies can issue different classes of common stock.  Which of the following statements concerning stock classes is CORRECT?

•  Question 29
2 out of 2 points

Stocks X and Y have the following data.  Assuming the stock market is efficient and the stocks are in equilibrium, which of
the following statements is CORRECT?

X                      Y
Price                                                 $30                  $30
Expected growth (constant)              6%                   4%
Required return                               12%                 10%

•  Question 30
2 out of 2 points

Which of the following statements is CORRECT?