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# Exam3B Answer Key - FIN350 Quiz 3 Fri First Name Last Name...

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FIN350 Quiz 3 Fri First Name___________ Last Name __________ Version B rs = D1 / P0 (dividend yield) + g (capital gain yield) rs = rRF + (rM – rRF) β Firm value=FCF1/(WACC-g) if free cash flows grow at a constant rate P=D1/(rs-g)=D0*(1+g)/(rs-g) WACC = wd*rd(1-T) + wp*rp + wc*rs 1. If you hold a \$2 million portfolio made up of the following stocks: Market value Beta Stock A .5 million 1.5 B .5 million 1.2 C 1 million .6 What is the beta of the portfolio? A) 1.95 B) 0.975 C) 1.1 D) 1.20 2. You determine that XYZ common stock will return 10 percent. XYZ has a beta of 1.1. The risk-free rate is 5 percent, and the market expected return is 10 percent. Which of the following is most likely to happen: A) You and other investors will buy up XYZ stock and its price will rise. B) You and other investors will sell XYZ stock and its price will fall. 3.This extra return above risk free rate (ri - rRf) that investors require for bearing the non-diversifiable risk of a stock is called______. A) beta B) risk aversion coefficient C) risk premium D) P/E ratio 4. Intel Company's stock has a beta of 1.5, the risk-free rate is 4%, and the market risk premium (rm - rRf) is 5%. What is Dell stock's required return? a. 5% b. 9% c. 11.5% d. 13.5% e. 14% 5. Stock A has a beta of 1.3 and Stock B has a beta of 0.7. Which of the following statements is CORRECT? a) Stock B would be a more desirable addition to a portfolio than Stock A. b) Stock A would be a more desirable addition to a portfolio than Stock B. c) When held in isolation, Stock B has greater volatility than Stock B. d) The required return on Stock A will be greater than that on Stock B. e) The required return on Stock B will be greater than that on Stock A. 1

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6. Which of the following is/are true of the Capital Asset Pricing Model? A) It uses the T-bill rate as the risk-free rate B) It uses beta as a measure of market risk C) All of above are correct D) None of above is correct 7. Stocks A and B each have an expected return of 12%, a beta of 1.5, and a standard deviation of 25%. Portfolio P has 40% in Stock A and 60% in Stock B. Which of
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Exam3B Answer Key - FIN350 Quiz 3 Fri First Name Last Name...

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