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FIN350 Quiz 3
Wed
First Name___________ Last Name __________ Version A
rs = D1 / P0 (dividend yield)
+
g (capital gain yield)
rs = rRF + (rM – rRF) β
Firm value=FCF1/(WACCg) if free cash flows grow at a constant rate
P=D1/(rsg)=D0*(1+g)/(rsg)
WACC = wd*rd(1T) + wp*rp + wc*rs
1. You determine that XYZ common stock will return 10
percent. XYZ has a beta of
0.8. The riskfree 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 return will fall.
C)
You and other investors will sell XYZ stock and its price will fall.
D)
You and other investors will buy up XYZ stock and its return will rise.
2. The capital asset pricing model
A)
provides a riskreturn tradeoff in which risk is measured in terms of stock
return volatility.
B)
measures risk as the coefficient of variation between security and market rates
of return
C)
depicts the total volatility of a stock
D)
p
rovides a riskreturn tradeoff in which risk is measured in terms of beta.
3. Suppose that the riskfree rate is 5% and expected rate of return on the market portfolio
is 12%.
What is the risk premium on the market portfolio (this is called the market risk
premium)?
(a) 5%
(b) 17%
(c) 7%
(d) 12%
4. If you hold a
$0.8
million portfolio made up of the following stocks:
Market value
Beta
Stock A
.4 million
1.5
B
.2 million
1.2
C
.2 million
.6
What is the beta of the portfolio?
A)
1.29
B)
1.14
C)
0.96
D)
1.20
1
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View Full Document 5. Which of the following is/are true of the Capital Asset Pricing Model?
A)
It uses the Tbill rate as the riskfree rate
B)
It uses beta as a measure of market risk
C)
The slope of the Security market Line (SML) is the market risk premium
D)
All of above are correct
6.
Dell Company's stock has a beta of 1.5, the riskfree rate is 5%, and the market
risk premium is 6%.
What is Dell stock's required return?
a.
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This note was uploaded on 09/20/2011 for the course FIN 350 taught by Professor Chen during the Spring '07 term at S.F. State.
 Spring '07
 Chen
 Finance

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