FIN 370T Wk 4 – Practice: Ch. 9, 10, and 11 Knowledge Check

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FIN 370T Wk 4 – Practice: Ch. 9, 10, and 11 Knowledge Check
FIN 370T Wk 4 – Practice: Ch. 9, 10, and 11 Knowledge Check
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FIN 370T Wk 4 – Practice: Ch. 9, 10, and 11 Knowledge Check

Which of these statements is true?

Multiple Choice

  • When people purchase a stock, they know exactly what their dollar and percent return are going to be.

  • Many people purchase stocks as they find comfort in the certainty for this safe form of investing.

  • When people purchase a stock, they know the short-term return, but not the long-term return.

  • When people purchase a stock, they do not know what their return is going to be-either short term or in the long run.

 

 

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

  • 8.83 percent

  • 22.67 percent

  • 23.55 percent

 

 

Rank the following three stocks by their risk-return relationship, best to worst. Night Ryder has an average return of 33 percent and standard deviation of 40 percent. The average return and standard deviation of WholeMart are 10 percent and 20 percent; and of Fruit Fly are 19 percent and 33 percent.

Multiple Choice

  • Night Ryder, WholeMart, Fruit Fly

  • WholeMart, Fruit Fly, Night Ryder

  • Night Ryder, Fruit Fly, WholeMart

  • Fruit Fly, Whole Mart, Night Ryder

 

 

Which of these is a measure of risk to reward earned by an investment over a specific period of time?

Multiple Choice

  • Coefficient of variation

  • Market deviation

  • Standard deviation

  • Total variation

 

 

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 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.

Multiple Choice

  • Idol Staff, Rail Haul, Poker-R-Us

  • Rail Haul, Idol Staff, Poker-R-Us

  • Idol Staff, Poker-R-Us, Rail Haul

  • Poker-R-Us, Rail Haul, Idol Staff

 

Consider the following correlations:

 

IBM Apple      Disney

IBM 1.0

Apple      -2    1

Disney    0.3   -7    1

________________________________________

 

Given this data, which of the following is most preferable if an investor can only select one pair of companies?

Multiple Choice

  • Apple and IBM

  • Disney and IBM

  • Disney and Apple

  • It does not matter which two are selected-there is no preference order.

 

 

Which of the following is the concept and procedure for combining securities into a portfolio to minimize risk?

Multiple Choice

  • Firm specific theory

  • Modern portfolio theory

  • Optimal portfolio theory

  • Total portfolio theory

 

 

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 Blue dominates portfolio Yellow

  • Portfolio Yellow dominates portfolio Blue

  • Portfolio Purple dominates portfolio Blue

  • Portfolio Purple dominates portfolio Yellow

 

 

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

  • Asset pricing

  • Behavioral finance

  • Beta

  • Efficient markets

 

 

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

Multiple Choice

  • Efficient return

  • Expected return

  • Market return

  • Required return

 

 

Hastings Entertainment has a beta of 1.24. If the market return is expected to be 10 percent and the risk-free rate is 4 percent, what is Hastings’ required return?

Multiple Choice

  • 11.44 percent

  • 12.44 percent

  • 14.96 percent

  • 16.40 percent

 

 

Which of these is the measurement of risk for a collection of stocks for an investor?

Multiple Choice

  • Beta

  • Efficient market

  • Expected return

  • Portfolio beta

 

 

Which of the following statements is correct?

Multiple Choice

  • Penny stocks are the stocks of small companies that are priced below $1 per share.

  • Restricted stocks are shares of stock issued to executives that have limitations on voting rights.

  • The Capital Market Line graphs the relationship between return and risk (beta).

  • All of the statements are correct.

 

 

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.

 

 

Paccar’s current stock price is $75.10 and it is likely to pay a $3.29 dividend next year. Since analysts estimate Paccar will have a 14.2 percent growth rate, what is its required return?

Multiple Choice

  • 15.39 percent

  • 17.94 percent

  • 18.58 percent

  • 19.62 percent

 

 

 

Which of the following statements is correct?

Multiple Choice

  • The weighted average cost of capital is calculated on a before-tax basis.

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

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

  • All of the statements are correct.

 

 

Bill’s Boards has 20 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 20 thousand bonds. If the common shares are selling for $30 per share, the preferred shares are selling for $17 per share, and the bonds are selling for 96 percent of par, what would be the weight used for debt in the computation of Bill’s WACC?

Multiple Choice

  • 0.83 percent

  • 2.79 percent

  • 2.87 percent

  • 3.33 percent

 

 

Town Crier has 10 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $28 per share, the preferred shares are selling for $15.50 per share, and the bonds are selling for 97 percent of par, what would be the weight used for debt in the computation of Town Crier’s WACC?

Multiple Choice

  • 3.02 percent

  • 3.12 percent

  • 3.20 percent

  • 3.33 percent

 

 

IVY has preferred stock selling for 98 percent of par that pays a 7 percent annual coupon. What would be IVY’s component cost of preferred stock?

Multiple Choice

  • 6.86 percent

  • 7.00 percent

  • 7.14 percent

  • 14.00 percent

 

 

Which of the following is a principle of capital budgeting which states that the calculations of cash flows should remain independent of financing?

Multiple Choice

  • Generally accepted accounting principle

  • Financing principle

  • Separation principle