Question 1
Beta is a more relevant measure of risk to an investor with a well-diversified portfolio than to an investor who holds only one stock.
True
False
Question 2
Risk that affects all firms is called
Question 3
You manage a portfolio in which you invest half of your money in T-Bills and the other half in a mutual fund that is indexed to match the market portfolio. What is the beta of this portfolio?
Question 4
The beta of a portfolio
Question 5
The beta of the market
Question 6
Beta is the slope of the security market line.
True
False
Question 7
The CAPM equation includes all of the following EXCEPT:
Question 8
The security market line
is negatively sloped.
shifts in response to changing inflationary expectations.
does not respond to changes in investors' willingness to bear risk.
does not respond to investor expectations about political stability.
always has a slope of one.
Question 9
A stock has a beta of 8. The expected market return is 10.5%. The equilibrium return for the stock is 17.30%. What is the risk-free rate according to the CAPM?
Question 10
The equilibrium expected return on an asset is 14%, the risk-free rate is 4% and the return on the market portfolio is 12%. What is the beta of the asset?
Question 11
Given the following information, determine which beta coefficient for Stock A is consistent with equilibrium: E(ki) = 8.5%; kF = 4%; E(kM) = 12%.
Question 12
You just took out a $12,000 loan for your small business. The loan has a four year term and repayment is in the form of four equal end-of-year payments. The interest rate on the loan is 15%. Consider the final loan payment. How much principal do you pay in the final payment?
Question 13
You borrow $42,500 over a nine year term. Your bank charges an annual rate of 10%. If the loan is repayable in equal end-of-period, annual payments, then what is the loan payment?
Question 14
You have a 5-year amortized loan with a nominal rate of 11% and annual payments of $5414. What is the original (time 0) principal of the loan?
Question 15
Jennifer presents a business plan to her bank's loan officer that predicts net cash flows for the first three years of $10,000, $15,000, and $8,000 respectively. If these cash flows occur at the end of each year and the discount rate is 4%, what is the total present value of these cash flows? (Round to the nearest whole dollar.)
Question 16
You would like to buy a Harley Davidson and you can afford to make a down payment of $2,000 and pay monthly (end-of-month) payments of $1,320. If the term is 48 months and the loan rate is 9% (APR), then what is the maximum that you can pay for the motorcycle?
Question 17
If General Motors expects profits of $50 million in a booming economy, what is the expected profit during a recession if this is the only other possibility and the overall expected profit is $35 million? The probability of a recession is 70%.
Question 18
Bond prices rise when interest rates fall. These two variables (bond prices and interest rates) are:
Question 19
You have a portfolio of two stocks: you invested $12,000 in a small biotech company and $6,000 in a fiber optic cable manufacturer. What is the portfolio weight on the biotech stock?
Question 20
Suppose that you hold a two-asset portfolio consisting of 100 shares of Clooney Brothers at $33 per share and 100 shares of Marx Brothers at $42 per share. Assume that you have computed the expected return on Clooney Brothers and Marx Brothers to be 20% and 12%, respectively. What is the expected return from the portfolio?
Question 21
An expected return from a portfolio
can be calculated more accurately than the expected return from any of the securities in the portfolio.
will lie somewhere between the highest and lowest expected returns from securities in the portfolio.
cannot be computed if there are fewer than three securities in the portfolio.
will exceed the highest expected return from any of the securities in the portfolio.
will be lower than the expected return from the security in the portfolio with the lowest yield because portfolios have less risk than individual securities.
Question 22
Suppose you paid $18.50 per share for Commerce Group Inc. common stock and sold it one year later for $24 per share. What was your holding period return if the stock paid no dividends during the year?
27%
13%
23%
32%
30%
Question 23
To earn a ________ return, you must incur ________ risk.
Question 24
Jacquie plans to deposit $3,500 into her savings account for each of the next 5 years, and then $2,000 per year for 5 years after that (all at year end). She anticipates interest rates to be 6% for the next 3 years and then 9% thereafter. How much will she have in the account after the 10 years?
Question 25
A generous benefactor to the local ballet plans to make a one-time endowment which would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?
$300,000
$3,000,000
$750,000
$1,428,571
Question 26
What is the present value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
$670.43
$842.41
$1,169.56
$1,348.48
$1,522.64
Question 27
Mary will receive $12,000 per year for the next ten years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent? (Round to the nearest whole dollar.)
$120,114
$67,803
$65,640
$56,793
Question 28
The present value of an ordinary annuity of $2,350 each year for 8 years, assuming an opportunity cost of 11 percent, is: (Round to the nearest whole dollar.)
$1,020
$27,869
$18,800
$12,093
Question 29
Suppose the present value of a 2-year ordinary annuity is $100. If the discount rate is 10%, what must be the annual cash flow?
$65.45
$82.64
$57.62
$53.78
$79.22
Question 30
To pay for her college education, Gina is saving $2,000 at the beginning of each year for the next eight years in a bank account paying 12 percent interest. How much will Gina have in that account at the end of 8th year? (Round up to the nearest whole dollar amount)
$16,000
$17,920
$24,600
$27,552
Question 31
The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of next 10 years is: (Round to the nearest whole dollar)
$28,974
$31,291
$14,494
$13,420
Question 32
Sarah found her dream lakefront home, valued at $250,000. She plans to buy a home just like it when she retires in 15 years. Sarah can earn 11% per year on her investments. The price of the house will increase 3% per year for the next 15 years. How much must she invest at the end of each of the next 15 years to finance the purchase?
$11,320.67
$7,266.31
$8,952.82
$10,198.81
$12,565.95
Question 33
An investor is considering the purchase of 20 acres of land. An analysis indicates that if the land is used for cattle grazing, it will produce a cash flow of $1,000 per year indefinitely. If the investor requires a return of 10% on investments of this type, what is the most he or she should be willing to pay for the land?
$1,000
$10,000
$100,000
$150,000
$1,000,000
Question 34
You expect to receive $800 at the end of each of the next twenty years. What is the present value of the stream of payments if the interest rate is 12%?
$5,975.55
$5,892.62
$6,049.60
$6,054.63
$5,619.80
Question 35
A 10-year ordinary annuity that provides a return of 7% has a present value of $15,000. What are the annual annuity payments?
Question 36
You are expecting to receive $70 per year at the end of each of the next five years. If you invest the money in account that pays 5%, then how much interest will you earn over the five years? (Round to the nearest whole dollar)
Question 37
In three years you will begin receiving an annual payment of $600 that will be made for two years. If the annual interest rate is 12%, what will be the balance in your account at the end of the fourth year?
Question 38
You are offered an investment that will pay you the cash flows shown in the table. The first cash flow occurs in one year. The cost of the investment is $1,086.59 (today). What is the return on the investment?
Question 39
Margaret plans to deposit $500 on the first day of each of the next five years, beginning today. If she earns 4% compounded annually, how much will she have at the end of five years?
Question 40
In future value or present value problems, unless stated otherwise, cash flows are assumed to be:
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