FINANCE

24. The constant growth model assumes which of the following?
A. That there is privately held information.
B. That the stock is efficiently priced.
C. That there are executive stock options available to managers.
D. That there is no restricted stock.

 

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


A. 6.8%
B. 12.8%
C. 16.0%
D. 22.7%

 

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


A. 13.5%
B. 22.5%
C. 18.3%
D. 40.0%

 

27. Required Return If the risk-free rate is 8 percent and the market risk premium is 2 percent, what is the required return for the market?
A. 2%
B. 6%
C. 8%
D. 10%

 

28. Required Return If the risk-free rate is 10 percent and the market risk premium is 4 percent, what is the required return for the market?
A. 4%
B. 7%
C. 10%
D. 14%

 

29. Risk Premium The annual return on the S&P 500 Index was 12.4 percent. The annual T-bill yield during the same period was 5.7 percent. What was the market risk premium during that year?
A. 5.7%
B. 6.7%
C. 12.4%
D. 18.1%

 

30. Risk Premium 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?
A. 6.2%
B. 11.9%
C. 18.1%
D. 24.3%

 

31. CAPM Required Return A company has a beta of 0.50. If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is the company’s required return?
A. 6.0%
B. 8.5%
C. 11.0%
D. 13.5%

 

32. CAPM Required Return A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company’s required return?
A. 22.750%
B. 33.125%
C. 45.500%
D. 51.000%

 

33. CAPM Required Return A company has a beta of 3.75. If the market return is expected to be 20 percent and the risk-free rate is 9.5 percent, what is the company’s required return?
A. 33.250%
B. 39.375%
C. 48.875%
D. 55.625%

 

34. Company Risk Premium A company has a beta of 4.5. If the market return is expected to be 14 percent and the risk-free rate is 7 percent, what is the company’s risk premium?
A. 7.0%
B. 25.5%
C. 31.5%
D. 38.5%

 

35. Company Risk Premium A company has a beta of 2.91. If the market return is expected to be 16 percent and the risk-free rate is 4 percent, what is the company’s risk premium?
A. 11.64%
B. 12.00%
C. 22.91%
D. 34.92%

 

36. Portfolio Beta You have a portfolio with a beta of 0.9. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.5?
A. 1.00
B. 1.20
C. 1.26
D. 2.40

 

37. Portfolio Beta You have a portfolio with a beta of 1.25. What will be the new portfolio beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a beta of 1.75?
A. 1.00
B. 1.35
C. 1.50
D. 3.00

 

38. Stock Market Bubble If the NASDAQ stock market bubble peaked at 3,750, and two and a half years later it had fallen to 2,200, what would be the percentage decline?
A. -15.87%
B. -17.05%
C. -41.33%
D. -58.67%

 

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