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Fundamentals of Corporate Finance, 2nd Edition, Selt Test Ch07
Fundamentals of Corporate Finance, 2nd Edition, Selt Test Ch07
Fundamentals of Corporate Finance, 2nd Edition, Selt Test Ch07
1. The investments with the highest expected return have the lowest risk.
A. True
B. False
3. Anna purchased a share of stock one year ago for $22. Today, she received a dividend of $0.97 and sold the stock for $25.30.
Her total holding period return is
A. 3.8%
B. 16.8%
C. 19.4%
D. $4.27
4. Total holding period return is the dollar gain (or loss) from purchasing an asset and selling it later.
A. True
B. False
5. The expected return on a stock is the weighted average of the possible returns that might occur.
A. True
B. False
6. Based on the table below, what is the expected return of the stock?
Probability
.20
Return
8%
.10
10%
.20
15%
.40
.10
12%
20%
A. 12.4%
B. 12.6%
C. 12.8%
D. 13.0%
7. Historically, the standard deviation of the returns from investing in large U.S. stocks has been greater than the standard
deviation of the returns from investing in small U.S. stocks.
A. True
B. False
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8. An investor will choose between Asset Q with an expected return of 6.5% and a standard deviation of 4.3%, Asset U with an
expected return of 8.8% and a standard deviation of 5.5%, and Asset B with an expected return of 8.8% and a standard
deviation of 6.5%. Which one should she prefer?
A. Asset Q
B. Asset U
C. Asset B
D. cannot be determined
B. finds the one security with the optimal expected rate of return
C. selects two or more securities whose returns are highly correlated with each other
D. selects two or more securities whose returns are not highly correlated with each other
11. The compensation received for assuming the risk in a balanced portfolio of risky assets is the
A. default risk premium
B. market risk premium
C. real risk premium
12. The Security Market Line is the graphic representation of the Capital Asset Pricing Model.
A. True
B. False
C. undiversifiable risk
D. unsystematic risk
14. What is the expected return for a stock that has a beta of 1.5 if the risk-free rate is 6% and the market rate of return is 11%?
A. 13.5%
B. 15%
C. 16.5%
D. 22.5%
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15. If the expected return on an asset is greater than its required return given on the Security Market Line, the stock is
A. fairly priced
B. overpriced
C. randomly priced
D. underpriced
18. You purchased a share of Blyton Industries common stock 1 year ago for $37.50. During the year you received dividends
totaling $.60 and today the stock can be sold for $39.28. What total return did you earn on this stock over the past year?
A. 1.6%
B. 4.7%
C. 6.1%
D. 6.3%
19. The greater the risk associated with an investment, the greater is its ___________
A. expected return.
B. realized return
C. price.
D. market appeal.
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B. False
3. Anna purchased a share of stock one year ago for $22. Today, she received a dividend of $0.97 and sold the stock for
$25.30. Her total holding period return is
A. 3.8%
B. 16.8%
C. 19.4%
D. $4.27
4. Total holding period return is the dollar gain (or loss) from purchasing an asset and selling it later.
A. True
B. False
5. The expected return on a stock is the weighted average of the possible returns that might occur.
A. True
B. False
6. Based on the table below, what is the expected return of the stock?
Probability
.20
10%
.20
15%
.10
B. 12.6%
C. 12.8%
8%
.10
.40
A. 12.4%
Return
12%
20%
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D. 13.0%
7. Historically, the standard deviation of the returns from investing in large U.S. stocks has been greater than the standard
deviation of the returns from investing in small U.S. stocks.
A. True
B. False
8. An investor will choose between Asset Q with an expected return of 6.5% and a standard deviation of 4.3%, Asset U
with an expected return of 8.8% and a standard deviation of 5.5%, and Asset B with an expected return of 8.8% and a
standard deviation of 6.5%. Which one should she prefer?
A. Asset Q
B. Asset U
C. Asset B
D. cannot be determined
B. finds the one security with the optimal expected rate of return
C. selects two or more securities whose returns are highly correlated with each other
D. selects two or more securities whose returns are not highly correlated with each other
11. The compensation received for assuming the risk in a balanced portfolio of risky assets is the
A. default risk premium
B. market risk premium
C. real risk premium
12. The Security Market Line is the graphic representation of the Capital Asset Pricing Model.
A. True
B. False
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B. diversifiable risk
C. undiversifiable risk
D. unsystematic risk
14. What is the expected return for a stock that has a beta of 1.5 if the risk-free rate is 6% and the market rate of return is
11%?
A. 13.5%
B. 15%
C. 16.5%
D. 22.5%
15. If the expected return on an asset is greater than its required return given on the Security Market Line, the stock is
A. fairly priced
B. overpriced
C. randomly priced
D. underpriced
18. You purchased a share of Blyton Industries common stock 1 year ago for $37.50. During the year you received
dividends totaling $.60 and today the stock can be sold for $39.28. What total return did you earn on this stock over the
past year?
A. 1.6%
B. 4.7%
C. 6.1%
D. 6.3%
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19. The greater the risk associated with an investment, the greater is its ___________
A. expected return.
B. realized return
C. price.
D. market appeal.
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