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##### [solution] » 1. A share of stock currently sells for $60, pays an annual

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1. A share of stock currently sells for $60, pays an annual**More:**

**1. A share of stock currently sells for $60, pays an annual dividend of $4.00, and earned a rate of return of 20% over the past year. What did this stock sell for one year ago?**

**$48.46**

**$53.33**

**$42.00**

**$46.15**

** **

**2. What is the expected return on a portfolio that will decline in value by 13% in a recession, will increase by 16% in normal times, and will increase by 23% during boom times if each scenario has an equal likelihood of occurrence?**

**13.00%**

**17.33%**

**8.67%**

**13.43%**

** **

**3. What is the approximate variance of returns if over the past 3 years an investment returned 8%, -12%, and 15%?**

**961**

**182**

**131**

**31**

** **

**4. Which one of the following risk types can be most eliminated by adding stocks to a portfolio?**

**Systematic risk**

**Inflation rate risk**

**Unique risk**

**Market risk**

** **

**5. What is the beta of a U.S. Treasury bill?**

**-1.0**

**1.0**

**0**

**Unknown**

** **

**6. Calculate a firm's WACC given that the total value of the firm is $2 million, $600,000 of which is debt, the pre-tax cost of debt is 10%, and the cost of equity is 15%. The firm pays no taxes.**

**11.5%**

**13.5%**

**9.0%**

**14.4%**

** **

**7. WACC can be used to determine the value of a firm by discounting the firm's:**

**pretax profits.**

**cash inflows.**

**after-tax net profits.**

**free cash flows.**

** **

**8. "Give me $5,000 today and I'll return $10,000 to you in 5 years," offers the investment broker. To the nearest percent, what annual interest rate is being offered?**

**9. The only measure of firm performance that accounts for cost of capital is:**

** **

**10. The Corner Market has fixed costs of $1,600, depreciation of $1,200, a tax rate of 35%, and a cost of capital of 12%. Variable costs represent 67% of sales. What minimum level of sales must the market obtain to avoid a net loss on its income statement?**

1.

1.

Return over past year = (P1-P0+D)÷P0

20% = ($60-P0+$4)÷P0

0.2×P0 = $60-P0+$4

Share price year ago, P0 = $53.33

2.

Calculation of expected return on a

portfolio:

Return Probability (1/3)

A...

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This question was answered on: * Feb 21, 2020 *

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