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Question 1 (2.5 points)

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1. You bought 100 shares of stock at $20 each. At the end of the year, you received a total of $400 in dividends, and your stock was worth $2,500 total.  What was your total percentage return?

Question 1 options:

A) 20%

B)        45%

C)        50%

D)        90%

E) 10%

Question 2 (2.5 points)

2. Systemic risk does not include

Question 2 options:

A) Labor strike in the oil industry

B)  Inflation

C)  GDP growth rate

D)  Government Debt Burden

E)  All of the above are systemic risk

Question 3 (2.5 points)

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3. The “total risk of a stock held in isolation is measured in finance by:

Question 3 options:

A) diversifiable risk.

           B) Beta risk

C) expected return

D) standard deviation (or variance)

           E) the market risk premium

Question 4 (2.5 points)

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4.  If the expected return to the market portfolio is 12%, the risk-free rate is 4%, then what is the market risk premiumn?

Question 4 options:

A) 8%

B) 12%

C) 16%

D)  1%

E)  Not enough information to tell.

Question 5 (2.5 points)

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  1. A stock with a beta of zero would be expected to have a rate of return equal to

Question 5 options:

A)        US T-Bill rate

B)        the market rate

C)        the S&P 500 rate

D)        the average Corporate AAA bond rate

           E)       the average Municipal AAA bond rate

Question 6 (2.5 points)

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6. What is the portfolio beta if 20% of your money is invested in Stock A with a beta of 2.3, 30% of your money is invested in Stock B with a beta of 0.7, and 50% of your money is invested in Stock C with a beta of 1.6?

Question 6 options:

A) 1.47

B) 1.53

C) 1.6

D) 4.6

E) 3.0

Question 7 (2.5 points)

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7. If a stock’s beta is greater than 1 then it means

Question 7 options:

A) The stock has the same risk as the overall market.

B) The stock has more systematic risk than the overall market.

C) The stock has less systematic risk than the overall market.

D) The stock has more unsystematic risk as the overall market.

E) The stock has less unsystematic risk as the overall market.

Question 8 (2.5 points)

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8. Consider the stock of Davidson Company, whose next dividend will be $2.  The dividends will grow at a constant annual rate of 5%, forever.  The required return is a 12% on the company’s stock, what is its price?

Question 8 options:

A) $30

B) $46.54

C) $28.57

D) $10

E) $2

Question 9 (2.5 points)

9. Which of the following statements is false?

Question 9 options:

A) Dividends are not a liability of the firm.

B) Most preferred dividends are cumulative.

C) Preferred stock does not generally carry voting rights.

D) Coupons are not a liability of the firm

E) The US equity markets have been found to be semi-strong efficient.

Question 10 (2.5 points)

10.   Portfolio diversification reduces risk because of the ______ between assets.

Question 10 options:

A) variance

B) risk premium

C) risk-free rate

D) covariance between assets

E) capital gains yield

Question 11 (2.5 points)

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11.  If the coupon rate is 6%, the YTM is 7.4% then what would be the semi-annual coupon?

Question 11 options:

A) $60

B)  $37

C)  $14

D)  $74

E)  $30

Question 12 (2.5 points)

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  1. A bond pays a coupon of $120.  If the yield to maturity is 15%, then the bond will sell at a ___________.  If the yield to maturity is 13%, then the bond will sell at a __________.

Question 12 options:

A) discount; discount

                 B) premium; premium

                C) discount; premium

                D) premium; discount

                 E) par value; premium

Question 13 (2.5 points)

13. If Dell Computer expects to issue a bond that has a yield of 5.8% and the city of Austin is issuing a municipal bond that has a yield of 5%.  What tax bracket must you be in to be indifferent between owning these two bonds?

Question 13 options:

A) 10.16%

B)  5%

C) 13.79%

D) 0.8%

E) 86.21%

Question 14 (2.5 points)

14. A callable bond held by an investor is riskier than a non-callable bond for the same company with the same maturity, and thus the interest rate is higher on the callable bond.

Question 14 options:

A) True

B) False

C) They are the same rate

Question 15 (2.5 points)

15. Which of the following is false?

Question 15 options:

A) There is an extremely large number of bond issues in themarketplace but generally low daily volume in single issues traded.

                  B) Lower coupon rate bonds have more interest rate risk than higher                       coupon bonds.

                   C) Finding the YTM for a bond involves the trial-n-error process.

                 D) Creditors have legal recourse if interest or principal payments are                    missed.

          E)  Zero Coupon bonds sell at par value.

Question 16 (2.5 points)

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16.  If the data shows that the financial market is Strong-form Efficient, then investors cannot make an above average rate of return (abnormal rate of return) consistently by using

Question 16 options:

A.) Inside information

B) Public information

C) Historical information

D) All the above (A) – (C)

E)  Only (B) and (C)

Question 17 (2.5 points)

17. Which of the following is false?

Question 17 options:

A) Stocks move on the non-surprise component of announcements.

B) The historical risk premium for large company stocks exceeds that for small company stocks.

C) The return distribution for large corporate bonds is bigger than for large corporate stocks.

D) The variance of the portfolio is just the sum weighted variances of the individual stocks in the portfolio.

E) All the above are false.

Question 18 (2.5 points)

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18. If 25% of your money is invested in Stock A with a 6% expected return, 55% of your money in Stock B with a expected return of -4%, and 20% of your money is invested in Stock C with an expected return of 8%, then what is the expected return for the portfolio?

Question 18 options:

A) 10%

B) 5.3%

C) 0.9%

D) 16%

E)   9%

Question 19 (2.5 points)

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19. The returns for Tapit.com over the last 3 years are given below.  Assuming no dividends were paid, what was the 3-year “average” Holding period return for Tapit?  Given the following information: 

      Year 1 return = 12%

      Year 2 return = – 8%

      Year 3 return = – 1%

Question 19 options:

A) 3%

B) 0.665%

C) 6.65%

D) 1%

E) 1.007%

Question 20 (2.5 points)

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20. Suppose the U.S. T-bill rate is 1.2%, the market risk premium is 6.5%, the standard deviation for the stock is 3.18, and the beta for Stock XYZ is 2.8. What is the expected return to the market portfolio?

Question 20 options:

A) 7.7%

B) 5.3%

C) 6.5%

D) 18.2%

E) 3.7%

Question 21 (2.5 points)

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21. Warren Buffett expects a 6% return on Goldman Sack’s preferred stock, and the dividend is expected to be $1.30 every quarter, what is the fair price for this preferred stock per share?

Question 21 options:

A) $43.333

B)  $21.667

C) $86.667

D) $ 1.245

E) None of the above

Question 22 (2.5 points)

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22. If the price for Telsa stock is $44 today, and the dividend next period is $3.50 and the price next period is expected to be $36, what is the dividend yield?

Question 22 options:

A)   18.182%

B) 18.182%

C)     7.955%

D)    22.22%

E)  – 10.228%

Question 23 (2.5 points)

23. The company TechnoFin.com is not expected to pay a dividend over the next fifteen years and you will hold it for just three years, yet it sells for a positive price.  Why?

Question 23 options:

A) The price is wrong it should sell for zero.

B) Your dividend yield is positive.

C) Your capital appreciation is positive.

D) Your friend that sold it to you said it was worth it, and so it is.

E)  The total return is negative.

Question 24 (2.5 points)

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24. Consider the stock of Trader Joe Inc., whose dividends are expected to be $3 every six months indefinitely.  The market requires an 8% return on the company’s stock, what is its price?

Question 24 options:

A) $ 6.25

B) $46.54

C) $28.57

D) $75.00

E) $225

Question 25 (2.5 points)

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25. Long-term bonds have more interest rate risk than short term bonds.

Question 25 options:

A) True

B) False

C) they have the same risk

Question 26 (2.5 points)

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26. Which of the following is false?

Question 26 options:

A) Risk is the absence of knowledge of the actual outcome of an event before it happens.

B) Risk to an investor in the financial markets is the volatility of the price.

C) The greater the potential reward, the greater the risk.

D) Stocks are traded more than bonds.

E) Most undeveloped countries do not have at least semi-strong efficient capital markets.

Question 27 (2.5 points)

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  1. What is the portfolio weight for Amazon if you invest $4,000 in it, $4,500 in Boeing, $7,000 in Home Depo?

Question 27 options:

A) 0.333

B) 0.400

C) 25

D) 0.258

E) 0.267

Question 28 (2.5 points)

  1. Given the following stocks which can you say is true?

Expected Return   Variance

            Stock A                   8%                   0.359

            Stock B                   8%                   0.597

            Stock C                  10%                 0.786

Question 28 options:

A) All investors should prefer Stock A to Stock C

B) All investors should prefer Stock B to Stock A

C) All investors should prefer Stock C to Stock B

D) All investors should prefer stock A to Stock B

E) We cannot say any of the above statements.

Question 29 (6 points)

29. Starbucks, Inc. just paid a dividend of $10.45. You expect that dividends will grow by 3 percent for the next year, then you expect dividends will stay flat at $4.70 for eight  years, and then after that dividends grow at1.8% rate indefinitely, what would you be willing to pay for a share of stock if the required return is 6 percent?

Question 29 options:

A) $152.973

B) $105.122

C) $102.661

D) $104.826

E) $153.269

Question 30 (6 points)

30. Suppose you have predicted the following returns for Apple Inc. stock in three possible states of nature.  What is the standard deviation of Apple Stock?

State  State Probability Apple Returns

Boom        0.4                           4.4%

Normal     0.2                            6%

Bust                                          2%

Question 30 options:

A)  2.16

B) 2.9

C) 0.004

D) 0.0004

E) 0.034467

Question 31 (6 points)

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  1. You are thinking of purchasing one of Jittery Joe’s Coffee Shop’s twenty -year bond that has twelve years left to maturity, it has a coupon rate of 5.80 percent and makes quarterly payments.  If the YTM on these bonds is 5.4 percent, what is the current bond price?

Question 31 options:

A) $1,000

B) $1,035.158

C) $509.795

D) $1,048.20

E) $924.019

Question 32 (6 points)

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32. Suppose the U.S. T-bill rate is 0.6%, the market risk premium is 3.3%, the standard deviation for the stock is 2.08, and the beta for Stock XYZ is 1.8.  What is the expected return for Stock XYZ?

Question 32 options:

A) 5.7%

B) 5.94%

C) 6.54%

D) 7.464%

E) 3.3%

Question 33 (6 points)

  1. If you have three stocks, with the following variances and betas, (A) which stock has the most risk; (B) which stock has the most systematic risk; and (C) which stock should have the highest expected return?

Variance  Beta

Stock A                 0.0045                         1.9

Stock B                 0.1456                         2.2

Stock C                 0.0023                         3.1

Question 33 options:

A) most risk Stock B; most systematic risk Stock C; highest expected return Stock A

B) most risk Stock C; most systematic risk Stock C; highest expected return Stock C

C) most risk Stock B; most systematic risk Stock C; highest expected return Stock C

D) most risk Stock B; most systematic risk Stock A; highest expected return Stock B

E) most risk Stock C; most systematic risk Stock A; highest expected return stock A

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