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  • FIN 370T Wk 4 – Apply: Homework

FIN 370T Wk 4 – Apply: Homework

Sprint Nextel Corp. stock ended the previous year at $25.00 per share. It paid a $2.57 per share dividend last year. It ended last year at $18.89. If you owned 650 shares of Sprint, what was your dollar return and percent return?

Multiple Choice

−$4,960; −16.13 percent

−$2,301; −14.16 percent

$2,960; 11.13 percent

−$3,960; −15.13 percent



Noble stock was $60.00 per share at the end of last year. Since then, it paid a $2.00 per share dividend last year. The stock price is currently $58. If you owned 400 shares of Noble, what was your percent return?

Multiple Choice

3.33 percent

−3.33 percent

3.45 percent

0 percent



Sharif's portfolio generated returns of 12 percent, 15 percent, −15 percent, 19 percent, and −12 percent over five years. What was his average return over this period?

Multiple Choice

19 percent

17 percent

3.8 percent

2.1 percent



FedEx Corp. stock ended the previous year at $113.39 per share. It paid a $0.40 per share dividend last year. It ended last year at $126.69. If you owned 300 shares of FedEx, what was your dollar return and percent return?

Multiple Choice

$3,990; 11.73 percent

$4,110; 12.08 percent

$2,009; 9.13 percent

$4,250; 12.29 percent



WayCo stock was $75 per share at the end of last year. Since then, it paid a $3 per share dividend last year. The stock price is currently $70. If you owned 200 shares of WayCo, what was your percent return?

Multiple Choice

4.00 percent

−2.67 percent

−6.67 percent

4.29 percent



Which of the following is defined as the volatility of an investment, which includes firm specific risk as well as market risk?

Multiple Choice

Market risk

Diversifiable risk

Standard deviation

Total risk



Which of these is the dollar return characterized as a percentage of money invested?

Multiple Choice

Market return

Dollar return

Average return

Percentage return



Which of the following is a measurement of the co-movement between two variables that ranges between -1 and +1?

Multiple Choice

Coefficient of variation

Correlation

Total risk

Standard deviation



Which of these is defined as a combination of investment assets held by an investor?

Multiple Choice

Portfolio

All of the options

Market basket

Bundle



Year-to-date, Company O had earned a −2.10 percent return. During the same time period, Company V earned 8.00 percent and Company M earned 6.25 percent. If you have a portfolio made up of 40 percent Company O, 30 percent Company V, and 30 percent Company M, what is your portfolio return?

Multiple Choice

16.35 percent

5.115 percent

3.435 percent

12.15 percent



An investor owns $2,000 of Adobe Systems stock, $4,000 of Dow Chemical, and $6,000 of Office Depot. What are the portfolio weights of each stock?

Multiple Choice

Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333

Adobe System = 0.3333, Dow Chemical = 0.1667, Office Depot = 0.5

Adobe System = 0.2, Dow Chemical = 0.4, Office Depot = 0.6

Adobe System = 0.1667, Dow Chemical = 0.3333, Office Depot = 0.5



Which of these is the reward for taking systematic stock market risk?

Multiple Choice

Risk-free rate

Required return

Market risk premium

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?

Multiple Choice

24.3 percent

18.1 percent

11.9 percent

6.2 percent



Which of these is the set of probabilities for all possible occurrences?

Multiple Choice

Market probabilities

Stock market bubble

Probability distribution

Probability



Which of the following is a model that includes an equation that relates a stock's required return to an appropriate risk premium?

Multiple Choice

Beta

Efficient markets

Asset pricing

Behavioral finance



If the risk-free rate is 10 percent and the market risk premium is 4 percent, what is the required return for the market?

Multiple Choice

14 percent

4 percentIn

10 percent

7 percent



Which of the following is typically considered the return on U.S. government bonds and bills and equals the real interest plus the expected inflation premium?

Multiple Choice

Market risk premium

Risk-free rate

Required return

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?

Multiple Choice

11.64 percent

34.92 percent

12.00 percent

22.91 percent



Which of these is the measurement of risk for a collection of stocks for an investor?

Multiple Choice

Portfolio beta

Expected return

Efficient market

Beta



The Nasdaq stock market bubble peaked at 10,816 in 2000. Two and a half years later it had fallen to 4,000. What was the percentage decline?

Multiple Choice

−49.18%

−57.13%

−69.47%

−63.02%



ABC Inc. has a dividend yield equal to 5 percent and is expected to grow at a 12 percent rate for the next seven years. What is ABC's required return?

Multiple Choice

6.7 percent

17.0 percent

2.4 percent

7.0 percent



ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years. What is ABC's required return?

Multiple Choice

5 percent

11 percent

4 percent

10 percent



Which of the following statements is correct?

Multiple Choice

An increase in the market risk premium is likely to increase the weighted average cost of capital.

All of the statements are correct.

The weights of debt and equity should be based on the balance sheet because this is the most accurate assessment of the valuation.

The weighted average cost of capital is calculated on a before-tax basis.



Which of the following is a true statement?

Multiple Choice

To estimate the before-tax cost of debt, we use the average rate on the firm's existing debt.

To estimate the before-tax cost of debt, we need to solve for the Yield to Call (YTC) on the firm's existing debt.

To estimate the before-tax cost of debt, we use the coupon rate on the firm's existing debt.

To estimate the before-tax cost of debt, we need to solve for the Yield to Maturity (YTM) on the firm's existing debt.



When calculating the weighted average cost of capital, weights are based on:

Multiple Choice

book weights.

market betas.

market values.

book values.



When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as:

Multiple Choice

a weighted average of the capital components costs.

a simple average of the capital components costs.

they apply to each asset as they are purchased with their respective forms of debt or equity.

a sum of the capital components costs.



Any debt and preferred stock components of capital should:

Multiple Choice

not be issued.

use firmwide, not project-specific, WACC figures.

use project-specific figures.

use project-specific, not firmwide, WACC figures.



Oberon Inc. has a $20 million ($1,000 face value) 10-year bond issue selling for 99 percent of par that pays an annual coupon of 7.25 percent. What would be Oberon's before-tax component cost of debt?

Multiple Choice

8.15 percent

6.12 percent

7.02 percent

7.40 percent



Which of these makes this a true statement? When determining the appropriate weights used in calculating a WACC, it should reflect:

Multiple Choice

the relative sizes of the total book capitalizations for each kind of security that the firm issues.

the relative sizes of the total market capitalizations for each kind of security that the firm issues.

only the market after-tax cost of equity.

only the market after-tax cost of debt.



Which statement makes this a false statement? When a firm pays commissions to underwriting firms that float the issuance of new stock:

Multiple Choice

the component cost will need to be integrated to figure project WACCs.

the component cost will need to be integrated only for the firm's WACC.

the firm can increase the project's WACC to incorporate the flotation costs' impact.

the firm can leave the WACC alone and adjust the project's initial investment upwards.


FIN 370T Wk 4 – Apply: Homework

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