Overview
1. Which of the following is true?
I. Beta is a measure of unsystematic risk
Il. Beta is a measure of systematic risk
IlI. The higher a stock's beta, the higher the return
l & ll
lll
l&lll
ll&lll
l,ll,lll
2. Use the information in the table to calculate the expected return of an equally-weighted portfolio
|
States of the Probabilities of States of the Economy |
Asset A |
Asset B |
Asset C |
|
|
Boom |
20% |
10% |
20% |
-10% |
|
Steady |
30% |
8% |
10% |
2% |
|
Bust |
50% |
4% |
0% |
18% |
7%
4%
8%
6%
5%
3. ACME is considering Project A and Project B, which are two mutually exclusive projects with unequal lives.
Project A is an eight-year project that has an initial outlay or cost of $180,000. Its future cash inflows for years 1 through 8 are $38,000. Find the equivalent annual annuity (EAA) if the discount rate is 11.50%.
2,476.55
2,650.55
2,045.68
2,396.18
2,155.45
4. Both assets B and C plot on the SML. Asset B has a beta of 1.1 and an expected return of 12.1%. Asset C has a beta of 80 and an expected return of 7.50%. The risk-free rate is 4% and the expected return on the market portfolio is 11%. If you wish to hold a portfolio consisting of assets B and C, and have a portfolio beta equal to 1.0, what proportion of the portfolio must be in asset C?
- 0.333
- 0.50
- .0125
- 0.75.
- 0.625
5. NPV assumes that cash flows are reinvested at the that cash flows are reinvested at
while IRR assumes
- NPV, IRR
- WACC, IRR
- IRR, WACC
- WACC, NPV
- IRR, NPV
6. Lila purchased Hampton Industries Inc. stock for $18.35 and sold it 6 months later for $21.45 after receiving a $0.50 dividend. What was her holding period return (HPR)?
- 20.34%
- 20.34%
- 19.62%
- 16.89
7. Which of the following is the correct decision rules for selecting capital budgeting projects?
IRR> WACC; NPV < 0
NPV > WACC; IRR < 0
IRR > WACC; NPV > 0
IRR< WACC; NPV > 0
IRR < WACC; NPV < 0
8. Historically, the
risk an investor is willing to accept, the
potential return for the investment