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?
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