29 Jun Question Question 1
Question
Question 1
1. A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = ?5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?
The constant growth model cannot be used because the growth rate is negative.
The company’s dividend yield 5 years from now is expected to be 10%.
The company’s expected stock price at the beginning of next year is $9.50.
The company’s expected capital gains yield is 5%.
The company’s current stock price is $20.
1 points
Question 2
1. Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?
Beta; beta.
Variance; correlation coefficient.
Beta; variance.
Coefficient of variation; beta.
Standard deviation; correlation coefficient.
1 points
Question 3
1. Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?
A project’s NPV increases as the WACC declines.
A project’s discounted payback increases as the WACC declines.
A project’s MIRR is unaffected by changes in the WACC.
A project’s IRR increases as the WACC declines.
A project’s regular payback increases as the WACC declines.
1 points
Question 4
1. Which of the following risk types can be diversified by adding stocks to a portfolio?
Systematic Risk.
Default risk.
Non diversifiable risks.
Unique risks.
Market Risk.
1 points
Question 5
1. Firms that make investment decisions based upon the payback rule may be biased towards rejecting projects:
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