Exam3A Answer Key Wed Class

Exam3A Answer Key Wed Class - FIN350 Quiz 3 Wed First...

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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/(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. You determine that XYZ common stock will return 10 percent. XYZ has a beta of 0.8. 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 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 risk-return trade-off 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 risk-return trade-off in which risk is measured in terms of beta. 3. Suppose that the risk-free 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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5. 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) 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 risk-free 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.

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Exam3A Answer Key Wed Class - FIN350 Quiz 3 Wed First...

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