FIN 370 Week 4 Assignment

FIN 370 Week 4 Assignment | University of Phoenix

1.

Sharif's portfolio generated returns of 12 percent, 15 percent, −15 percent, 19 percent, and −12 percent over five years. What was his average return over this period?

Multiple Choice

•             2.1 percent

•             3.8 percent 

•             17 percent

•             19 percent

2.

Which of the following is the  ranking from least risky to most risky?

Multiple Choice

•             Treasury bills, long-term Treasury bonds, stocks

•             Long-term Treasury bonds, stocks, Treasury bills

•             Stocks, long-term Treasury bond, Treasury bills

•             Stocks, Treasury bills, long-term Treasury bonds

3.

Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 10 percent and standard deviation of 15 percent. The average return and standard deviation of Idol Staff are 15 percent and 25 percent; and of Poker-R-Us are 12 percent and 35 percent.

Multiple Choice

•             Idol Staff, Poker-R-Us, Rail Haul

•             Rail Haul, Poker-R-Us, Idol Staff

•             Poker-R-Us, Idol Staff, Rail Haul

•             Idol Staff, Rail Haul, Poker-R-Us

4.

 Sprint Nextel Corp. stock ended the previous year at $25.00 per share. It paid a $2.57 per share dividend last year. It ended last year at $18.89. If you owned 650 shares of Sprint, what was your dollar return and percent return?

Multiple Choice

•             $2,960; 11.13 percent

•             −$3,960; −15.13 percent

•             −$2,301; −14.16 percent   

•             −$4,960; −16.13 percent

5.

Noble stock was $60.00 per share at the end of last year. Since then, it paid a $2.00 per share dividend last year. The stock price is currently $58. If you owned 400 shares of Noble, what was your percent return?

Multiple Choice

•             3.33 percent

•             −3.33 percent

•             0 percent 

•            

6.

MedTech Corp. stock was $50.95 per share at the end of last year. Since then, it paid a $0.45 per share dividend. The stock price is currently $62.50. If you owned 500 shares of MedTech, what was your percent return?

Multiple Choice

•             7.20 percent

•             22.67 percent

•             23.55 percent  

•            

7.

Rx Corp. stock was $60.00 per share at the end of last year. Since then, it paid a $1.00 per share dividend last year. The stock price is currently $62.50. If you owned 400 shares of Rx, what was your percent return?

Multiple Choice

•             1.67 percent

•             5.60 percent

•             5.83 percent 

•             4.17 percent

8.

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 15 percent. The average return and standard deviation of Idol Staff are 15 percent and 25 percent; and of Poker-R-Us are 12 percent and 35 percent.

Multiple Choice

•             Poker-R-Us, Idol Staff, Rail Haul

•             Idol Staff, Poker-R-Us, Rail Haul

•             Rail Haul, Idol Staff, Poker-R-Us  

•             Idol Staff, Rail Haul, Poker-R-Us

9.

Which of the following is  regarding the coefficient of variation?

Multiple Choice

•             None of the statements are .

•             It measures the amount of return achieved for each one percent of risk taken.

•             It measures the amount of standard deviation for each one percent of covariance.

•             It measures the amount of risk taken for each one percent of return achieved.

10.

Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 7 percent and risk of 10 percent. The expected return and risk of portfolio Yellow are 13 percent and 10 percent, and for the Purple portfolio are 9 percent and 14 percent.

Multiple Choice

•             Portfolio Purple dominates portfolio Yellow

•             Portfolio Purple dominates portfolio Blue

•             Portfolio Blue dominates portfolio Yellow

•             Portfolio Yellow dominates portfolio Blue

11.

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

Multiple Choice

•             Modern portfolio

•             Optimal portfolio 

•             Efficient portfolio

•             Total portfolio

12.

Which of the following is a model that includes an equation that relates a stock's required return to an appropriate risk premium?

Multiple Choice

•             Efficient markets

•             Asset pricing 

•             Behavioral finance

•             Beta

13.

The average annual return on the S&P 500 Index from 1986 to 1995 was 17.6 percent. The average annual T-bill yield during the same period was 9.8 percent. What was the market risk premium during these 10 years?

Multiple Choice

•             8.2 percent

•             9.8 percentIn

•             8.8 percent

•             7.8 percent

14.

The annual return on the S&P 500 Index was 18.1 percent. The annual T-bill yield during the same period was 6.2 percent. What was the market risk premium during that year?

Multiple Choice

•             11.9 percent

•             18.1 percent

•             6.2 percent

•             24.3 percent

15.

Compute the expected return given these three economic states, their likelihoods, and the potential returns:

Economic State Probability                         Return

Fast Growth       0.3                         40           %

Slow Growth      0.4                         15           %

Recession            0.3                         −15         %

________________________________________

Multiple Choice

•             40.0 percent

•             13.5 percent

•             18.3 percent

•             22.5 percent

16.

Which of these is the set of probabilities for all possible occurrences?

Multiple Choice

•             Stock market bubble

•             Probability distribution

•             Probability

•             Market probabilities

17.

Which of the following is the average of the possible returns weighted by the likelihood of those returns occurring?

Multiple Choice

•             Market return

•             Expected return

•             Efficient return

•             Required return

18.

Which of the following is the use of debt to increase an investment position?

Multiple Choice

•             Stock market bubble

•             Probability

•             Financial leverage

•             Behavioral finance

19.

Investor enthusiasm causes an inflated bull market that drives prices too high, ending in a dramatic collapse in prices is known as:

Multiple Choice

•             stock market bubble.

•             efficient market.

•             privately held information.

•             behavior finance.

20.

A company has a beta of 0.85. If the market return is expected to be 9 percent and the risk-free rate is 2.5 percent, what is the company's required return?

Multiple Choice

•             10.150 percent

•             21.775 percent

•             7.350 percent

•             8.025 percent

21.

ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years. What is ABC's required return?

Multiple Choice

•             5 percent

•             4 percent

•             11 percent

•             10 percent

22.

Shares of stock issued to employees that have limitations on when they can be sold are known as:

Multiple Choice

•             executive stock options.

•             privately held information.

•             restricted stock.

•             stock market bubble.

23.

When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as:

Multiple Choice

•             a simple average of the capital components costs.

•             they apply to each asset as they are purchased with their respective forms of debt or equity.

•             a sum of the capital components costs.

•             a weighted average of the capital components costs.

24.

Which of the following will impact the cost of equity component in the weighted average cost of capital?

Multiple Choice

•             The risk-free rate

•             All of the above

•             Expected return on the market

•             Beta

25.

Apple's 9 percent annual coupon bond has 10 years until maturity and the bonds are selling in the market for $890. The firm's tax rate is 36 percent. What is the firm's after-tax cost of debt?

Multiple Choice

•             3.91 percent

•             9.81 percent

•             10.86 percent

•             6.95 percent

26.

Which of the following statements is ?

Multiple Choice

•             All of the statements are .

•             The weights of debt and equity should be based on the balance sheet because this is the most accurate assessment of the valuation.

•             An increase in the market risk premium is likely to increase the weighted average cost of capital.

•            

27.

Multiple Choice

•             75.00 percent

•             57.36 percent

•             33.33 percent

•             61.64 percent

28.

Which of the following is a true statement regarding the appropriate tax rate to be used in the WACC?

Multiple Choice

•             One would use the weighted average of the marginal tax rates that would have been paid on the taxable income shielded by the interest deduction.

•             One would use the average tax rate that the firm paid the prior year.

•             One would use the marginal tax rates that would have been paid on the taxable income shielded by the interest deduction.

•             One would use the marginal tax rate that the firm paid the prior year.

29.

Paper Exchange has 10 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 100 thousand bonds. If the common shares are selling for $25 per share, the preferred shares are selling for $10 per share, and the bonds are selling for 98 percent of par, what would be the weight used for preferred stock in the computation of Paper's WACC?

Multiple Choice

•             5.00 percent

•             3.33 percent

•             12.00 percent

•             12.56 percent

30.

An estimated WACC computed using some sort of proxy for the average equity risk of the projects in a particular business unit is known as the:

Multiple Choice

•             Business unit WACC

•             Pure play beta

•             Divisional WACC

•             Component cost