Download AGEC 4040 MT 2 PRACTICE WITH COMPLETE SOLUTIONS!! and more Exams Nursing in PDF only on Docsity!
AGEC 4040 MT 2 PRACTICE WITH
COMPLETE SOLUTIONS!!
The ________ rate of interest is the rate that balances the supply of savings and the demand for investment funds. equilibrium Generally, an increase in risk will result in ________. a higher required return or interest rate The ________ rate of interest is the actual rate charged by the supplier and paid by the demander of funds. nominal According to the expectations hypothesis, a(n) ________ yield curve reflects lower expected future rates of interest. downward sloping An upward-sloping yield curve that indicates cheaper short-term borrowing costs than long-term borrowing costs is called as ________. normal yield curve ________ is a process that links risk and return to determine the worth of an asset. valuation The less certain a cash flow, the ________ the risk, and the ________ the present value of the cash flow.
higher; lower Corporate bonds usually have a ________. par value of $1, A type of long-term financing used by both corporations and government entities is ________ bonds Which of the following is a difference between common stock and bonds? Bondholders have a senior claim on assets and income relative to stockholders Regarding the tax treatment of payments to securities holders, it is TRUE that ________. common stock dividends and preferred stock dividends are not tax- deductible, while interest is usually tax deductible Common stockholders expect to earn a return by receiving ________. dividends Which of the following typically applies to common stock but not to preferred stock? voting rights Common stockholders are sometimes referred to as ________. residual owners ________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends. preferred stockholders
zero-growth model Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.'s common stock is ________. $56 (5.60/0.10) A firm has experienced a constant annual rate of dividend growth of 9 percent on its common stock and expects the dividend per share in the coming year to be $2.70. The required return on the firm's stock is 12 percent. The value of the firm's common stock is ________. $90/share (2.70/0.12-0.09) Julian is considering purchasing the stock of Pepsi Cola because he really loves the taste of Pepsi. What should Julian be willing to pay for Pepsi today if it is expected to pay a $2 dividend in one year and he expects dividends to grow at 5 percent indefinitely? Julian requires a 12 percent return to make this investment. $28.57 (2/0.12-0.05) ________ is a guide to a firm's value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the industry. The P/E multiple Which of the following valuation methods tends to value stocks more highly than the others in the list because it considers expected earnings? P/E multiple Which of the following is TRUE of risk? Risk is a measure of the uncertainty surrounding the return that an investment will earn. The total rate of return on an investment over a given period of time is calculated by ________.
dividing the asset's cash distributions during the period, plus change in value, by its beginning-of period investment value If an investor prefers investments with greater risk even if they have lower expected returns, then he is following a ________ strategy. risk-seeking If an investor requires greater return when risk increases, then he is said to be ________. risk-averse A common approach of estimating the variability of returns involving the forecast of pessimistic, most likely, and optimistic returns associated with an asset is called ________. scenario analysis The simplest type of probability distribution is a ________. bar chart A ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns. coefficient of variation The ________ the coefficient of variation, the ________ the risk. lower; lower An efficient portfolio is one that ________. maximizes return for a given level of risk An investment advisor has recommended a $50,000 portfolio containing assets R, J, and K; $25,000 will be invested in asset R, with an expected annual return of 12 percent; $10,000 will be invested in asset J, with an expected annual return of 18 percent; and $15,000 will be invested in asset K, with an expected annual return of 8 percent. The expected annual return of this portfolio is ________.
is the weighted average of all the betas of the individual assets in the portfolio As randomly selected securities are combined to create a portfolio, the ________ risk of the portfolio decreases. The portion of the risk eliminated is ________ risk, while that remaining is ________ risk. total; diversifiable; nondiversifiable If you expect the market to increase which of the following portfolios should you purchase? a portfolio with a beta of 1. A(n) ________ in the beta coefficient normally causes ________ in the required return and therefore ________ in the price of the stock, everything else remaining the same. increase; an increase; a decrease The ________ describes the relationship between nondiversifiable risk and the required rate of return. capital asset pricing model (CAPM) In the capital asset pricing model, the beta coefficient is a measure of ________. nondiversifiable risk Asset Y has a beta of 1.2. The risk-free rate of return is 6 percent, while the return on the market portfolio of assets is 12 percent. The market risk premium is ________. 6.0% In the capital asset pricing model, the beta coefficient is a measure of ________. market risk
Asset P has a beta of 0.9. The risk-free rate of return is 8 percent, while the return on the market portfolio of assets is 14 percent. The asset's required rate of return is ________. 13.4% (0.08 + 0.9 x (.14 - 0.08)) Two central components of the CAPM are the ________. risk-free rate and market risk premium The ________ is a weighted average of the cost of funds which reflects the interrelationship of financing decisions. cost of capital In order to recognize the interrelationship between financing and investments, a firm should use ________ when evaluating an investment. the weighted average cost of all financing resources The four basic sources of long-term funds for a firm are ________. long term debt, common stock, preferred stock, and retained earnings A tax adjustment must be made in determining the cost of ________. long-term debt The before-tax cost of debt for a 15-year, 10 percent, $1,000 par value bond selling at $950 is ________. 10.7 percent The before-tax cost of debt for a 10-year, 8 percent, $1,000 par value bond selling at $1,150 is ________. 5.97 percent The constant-growth valuation model is based on the premise that the value of a share of common stock is ________.
