26 May Question 1. Next year’s annualdividend divided by the current stock price is called
Question
1. Next year’s annualdividend divided by the current stock price is called the:
(a) yield to maturity.
(b) total yield.
(c)dividendyield.
(d) capital gains yield.
(e) earnings yield.
2. Payments made by a corporation to itsshareholders, in the form of either
cash, stock or payments in kind, are called:
(a) retained earnings.
(b) net income.
(c) dividends.
(d) redistributions.
(e) infusedequity.
3. The excess return required from a risky asset over that required from a risk-
free asset is called the:
(a) risk premium.
(b) geometric premium.
(c) excess return.
(d) average return.
(e) variance.
1
4. A stock had returns of 8 percent, -2 percent, 4 percent, and 16 percent over
the past four years. What is the standard deviation of this stock for the past
four years?
(a) 6.3 percent
(b) 6.6 percent
(c) 7.1 percent
(d) 7.5 percent
(e) 7.9 percent
5. Nuvo, Inc. stock has a beta of .86 and an expected return of 10.5 percent.
The risk-free rate of return is 3.2 percent and the market rate of return is 11.2
percent. Which one of the following statements is true given this information?
(a) The return on Nuvo stock will graph below the Security Market Line.
(b) Nuvo stock is underpriced.
(c) The expected return on Nuvo stock based on the Capital Asset Pricing
Model is 9.88 percent.
(d) Nuvo stock has more systematic risk than the overall market.
(e) Nuvo stock is correctly priced.
6. Thecommonstock of Flavorful Teas has an expected return of 14.4 percent.
The return on the market is 10 percent and the risk-free rate of return is 3.5
percent. What is the beta of this stock?
(a) 0.65
(b) 1.09
(c) 1.32
(d) 1.44
(e) 1.68
7. An investment is acceptable if its IRR:
(a) is exactly equal to its net present value (NPV).
(b) is exactly equal to zero.
(c) is less than the required return.
(d) exceeds the required return.
(e) is exactly equal to 100 percent.
8. A project costing $20,000 generates cash in
ows of $9,000 annually for the
rst 3 years, followed by cash out
ows of $1,000 annually for 2 years. At
most, this project has dierent IRR(s).
(a) one
2
(b) two
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