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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 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.

 

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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