FIN 534 QUIZ 4
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FIN 534 QUIZ 4 1. Recession, inflation, and high interest rates are economic events that are best characterized as being 2. Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. Your portfolio consists of 50% A and 50% B. Which of the following statements is CORRECT? 3. Assume that the risk-free rate is 6% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT? 4. Which of the following statements is CORRECT? 5. Which of the following statements is CORRECT? 6. If markets are in equilibrium, which of the following conditions will exist? 7. Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true, assuming the CAPM is correct. 8. Which of the following statements is CORRECT? 9. Which of the following statements is CORRECT? 10. Stocks A and B are quite similar: Each has an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of 0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECT? 11. If you randomly select stocks and add them to your portfolio, which of the following statements best describes what you should expect? 12. Which of the following is most likely to occur as you add randomly selected stocks to your portfolio, which currently consists of 3 average stocks? 13. Stock X has a beta of 0.7 and Stock Y has a beta of 1.7. Which of the following statements must be true, according to the CAPM? 14. Which of the following is most likely to be true for a portfolio of 40 randomly selected stocks? 15. Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.) 16. Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? 17. Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? 18. Which of the following statements is NOT CORRECT? 19. A share of Lash Inc.'s common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price? 20. Which of the following statements is CORRECT, assuming stocks are in equilibrium? 21. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? 22. Which of the following statements is CORRECT? 23. A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price? 24. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? 25. Which of the following statements is CORRECT? 26. Which of the following statements is CORRECT? 27. Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT? 28. Which of the following statements is CORRECT? 29. You, in analyzing a stock, find that its expected return exceeds its required return. This suggests that you think 30. Merrell Enterprises' stock has an expected return of 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?