Mid Term - Managerial Finane - Student

Mid Term - Managerial Finane - Student - Mid Term...

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Mid Term - Managerial Finance (5-29) Student: ___________________________________________________________________________ 1. The linear relation between an asset's expected return and its beta coefficient is the: A. reward-to-risk ratio. B. portfolio weight. C. portfolio risk. D. security market line. E. market risk premium. 2. You are considering purchasing stock S. This stock has an expected return of 8% if the economy booms and 3% if the economy goes into a recessionary period. The overall expected rate of return on this stock will: A. be equal to one-half of 8% if there is a 50% chance of an economic boom. B. vary inversely with the growth of the economy. C. increase as the probability of a recession increases. D. be equal to 75% of 8% if there is a 75% chance of a boom economy. E. increase as the probability of a boom economy increases. 3. Which one of the following statements is correct concerning the expected rate of return on an individual stock given various states of the economy? A. The expected return is a geometric average where the probabilities of the economic states are used as the exponential powers. B. The expected return is an arithmetic average of the individual returns for each state of the economy. C. The expected return is a weighted average where the probabilities of the economic states are used as the weights. D. The expected return is equal to the summation of the values computed by dividing the expected return for each economic state by the probability of the state. E. As long as the total probabilities of the economic states equal 100%, then the expected return on the stock is a geometric average of the expected returns for each economic state. 4. The expected return on a stock that is computed using economic probabilities is: A. guaranteed to equal the actual average return on the stock for the next five years. B. guaranteed to be the minimal rate of return on the stock over the next two years. C. guaranteed to equal the actual return for the immediate twelve month period. D. a mathematical expectation based on a weighted average and not an actual anticipated outcome. E. the actual return you will receive.
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5. The systematic risk of the market is measured by: A. a beta of 1.0. B. a beta of 0.0. C. a standard deviation of 1.0. D. a standard deviation of 0.0. E. a variance of 1.0. 6. You recently purchased a stock that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy. There is a 15% probability of a boom, a 75% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock? A. 5.00% B. 6.45% C. 7.30% D. 7.65% E. 8.30% 7. The Inferior Goods Co. stock is expected to earn 14% in a recession, 6% in a normal economy, and lose 4% in a booming economy. The probability of a boom is 20% while the probability of a normal economy is 55% and the chance of a recession is 25%. What is the expected rate of return on this stock? A. 6.00%
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This note was uploaded on 06/19/2011 for the course MGT 325 taught by Professor John during the Spring '11 term at St. Leo.

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Mid Term - Managerial Finane - Student - Mid Term...

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