Download FIN350 In-Class-Work No. 2 First Name Last Name The capital asset

FIN350 In-Class-Work No. 2
First Name ______________________
1.
A)
B)
C)
D)
Last Name __________________
The capital asset pricing model
provides a risk-return trade-off in which risk is measured in terms of the market volatility.
provides a risk-return trade-off in which risk is measured in terms of beta.
measures risk as the coefficient of variation between security and market rates of return
depicts the total risk of a security
2. Sibling Incorporated has a beta of 1.0. If the expected return on the market is 14 percent, what is the
expected return on Sibling Incorporated's stock?
A) 10%
B) 14%
C) 18%
D) cannot be determined without the risk-free rate.
3. You determine that XYZ common stock will return 15 percent. XYZ has a beta of 1.5. The risk-free
rate is 5 percent, and the market expected return is 15 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 buy up XYZ stock and its return will rise.
D) You and other investors will sell XYZ stock and its price will fall.
4. If you hold a $1.3 million portfolio made up of the following stocks:
Market value
Beta
Stock A .2 million
1.5
B
.5 million
1.2
C
.6 million
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What is the beta of the portfolio?
A)
1.17
B)
1.14
C)
1.38
D)
1.06
E)
cannot be determined from the information given
5.
Which of the following is/are true of the Capital Asset Pricing Model?
A)
Its graph is referred to as the Characteristic Line
B)
It uses the T-bill rate as the risk-free rate
C)
It uses beta as a measure of market risk
D)
all of the above
E)
Only B and C above
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6.
Stock A has a beta of 1.5 and stock B has a beta of 0.5. Which of the following statements must be
true a bout these securities? (Assume the market is in equilibrium.)
a)When held in isolation, Stock A has greater risk than Stock B.
b)Stock B would be a more desirable addition to a portfolio than Stock A.
c) Stock A would be a more desirable addition to a portfolio than Stock B.
d)The expected return on Stock A will be greater than that on Stock B.
e)The expected return on Stock B will be greater than that on Stock A.
7. Which of the following is the slope of the security market line?
A) beta
B) one
C) It varies and is steeper for riskier securities.
D) the market risk premium
8.
Auto Loans R Them loans you $24,000 for four years to buy a car. The loan must be repaid in 48 equal
monthly payments. The annual interest rate on the loan is 9 percent. What is the monthly payment? A)
$500.92 B) $543.79 C) $563.82 D) $597.24
9. At 5.95 percent compounded annually, how long will it take $1,000 to double?
A) 8 years B) 10 months C) 12 years D) 16 years
10.
If you put $1,000 in a savings account with a 5 percent nominal rate of interest compounded quarterly, what
will the investment be worth in 6 years (round to the nearest dollar)?
A) $1,003 B) $1,132 C) $1,228 D) $1,347
11. What is the present value of an annuity of $1,000 received at the end of each year for 15 years? The
first payment will be received one year from today (round to nearest $1). The discount rate is 7.5
percent. A) $5,407 B) $6,827 C) $7,541 D) $8,827 E) $10,916
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12. You have $800 that you would like to invest. You have two choices: Savings account A which earns
8% compounded annually, or savings account B which earns 7.90% compounded semiannually.
Which would you choose and why?
e)
a)
A because it has a higher effective annual rate.
b)
A because it has the higher quote rate
c)
B because it has a higher effective annual rate
d)
B because the future value in one year is lower
Bb because it has the higher quoted rate
13. Given the following cash flows, what is the present value if the discount rate is 8%?
Year
Cash Flow
a)
b)
c)
d)
e)
1
$400
$1,415.07
$2,714.09
$2,865.70
$3,222.62
$3,058.96
2
$250
3
$900
4
$1925
14. What is the future value in 12 years of $800 payments received at the beginning of each year for the next
12 years? Assume an interest rate of 8.25%.
a) $14,259.63
b) $15,408.65
c) $16,679.86
d)$18,495.48
e)$20,782.15
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