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Category > Business & Finance Posted 07 Jun 2017 My Price 7.00

1. We assume investors are risk averse, and therefore they:

1. We assume investors are risk averse, and therefore they:
A. are equally concerned with upside potential and downside risk.
B. expect a higher return for bearing more risk.
C. will pay more for an investment with higher risk.
D. have very high required rates of return.

 

 

 

2. The weighted average cost of capital is:
A. the average return for the company's stock over the past several years.
B. the average cost, including commissions, for raising capital for the firm.
C. an average required return for each of the sources of capital used by the firm to finance its projects, weighted by the amount contributed by each source.
D. interest payments and dividends, divided by the price of bonds and stock, respectively.

 

3. In the Capital Asset Pricing Model, the market risk premium can be thought of as:
A. the return investors expect to earn for each unit of risk as measured by beta.
B. the risk premium that any asset must pay above the risk-free rate.
C. the expected return on the market portfolio (or a broad market index).
D. a measure of risk of an asset.

 

4. Investors will make an investment if:
A. the historical rate of return exceeds the expected rate of return.
B. the required rate of return exceeds the expected rate of return.
C. the expected rate of return exceeds the actual rate of return.
D. the expected rate of return exceeds the required rate of return.

 

5. The Hamada Equation allows the firm to: (Points : 1)
A. solve for a company's total risk.
B. adjust the beta of a pure-play firm for its use of debt financing.
C. estimate its asset beta.
D. Both b and c are correct.

 

6. In the Capital Asset Pricing Model, the risk-free rate: (Points : 1)
A. links the CAPM to current market conditions.
B. is the historic long-term average rate of government bonds.
C. can be approximated by using yields on high-rated corporate bonds.
D. is always the current yield on 30-year US government Treasury bonds.

 

7. Which of the following statements regarding the cost of preferred stock is true? (Points : 1)
A. It is typically found by solving for an annuity's discount rate.
B. It is typically found by solving for an annuity due's discount rate.
C. It is found similarly to a perpetuity's discount rate but with irregular spacing of the dividends.
D. It is typically found by solving for a perpetuity's discount rate.

 

8. Which of the following is beta is used for? (Points : 1)

A. estimating a regression line
B. estimating a firm's total risk to be used in the WACC
C. estimating a firm's market risk and used with the CAPM
D.estimating the amount of leverage used by the firm

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Status NEW Posted 07 Jun 2017 07:06 AM My Price 7.00

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