1.Which of the following is true regarding
market risk? (Points : 1)
It is measured by beta.
It is also called nondiversifiable risk.
It is also called systematic risk.
all of the above
If an investor purchases a share of stock for $300, collects a dividend
during the year equal to $35 a share, and sells the stock at the end of the
year for $289, what is the investor’s return for the year? (Points : 1)
3.One reason why we are not concerned with
idiosyncratic risk (also called firm-specific risk) is that: (Points : 1)
risk is not firm-specific, so we can ignore it.
hedging and insurance, investors may now invest in stocks with almost no risk
exposure of any kind.
is easy and almost costless to diversify one’s portfolio and eliminate
in bonds can offset the idiosyncratic risks of shares of stock.
4.Beta is estimated as the slope of a regression
line fit to pairs of periodic returns, (rx, ry),
where: (Points : 1)
is the return for a market index such as the S&P 500 Index.
the return for the stock being analyzed—for example, IBM’s return if we are
estimating IBM’s beta.
slope measures the average return for the market portfolio for each
percentage change in the value of the security of interest.
the return for the market index such as the S&P 500 Index.
5.The financing mix reflected in the WACC
should: (Points : 1)
the desired mix and not necessarily the mix being used to finance a specific
from project to project, depending on how they are financed.
reflect the firm’s current capital structure.
None of these answers is correct.
6.Which of the following best describes a
pure-play? (Points : 1)
private firm that is held in isolation in a one-company investment portfolio
a publicly traded firm that is similar to the company or project being
Both a and b are correct.
Neither a nor b is correct.
7.Which of the following is beta is used for?
(Points : 1)
estimating a regression line
estimating a firm’s total risk to be used in the WACC
estimating a firm’s marketrisk and used with the CAPM
estimating the amount of leverage used by the firm
8.The Hamada Equation allows the firm to:
(Points : 1)
for a company’s total risk.
the beta of a pure-play firm for its use of debt financing.
its asset beta.
Both b and c are correct.
9.Which of the following statements regarding
the cost of debt is true? (Points : 1)
The cost of debt for bonds equals the coupon rate of outstanding bonds.
The cost of debt for bonds is found by dividing the price by the annual
The cost of debt for bonds is found by calculating their yield to maturity.
The cost of debt equals the flotation costs charged by investment bankers who
advise the firm.
10.Chapter 9 discusses three different types of
returns. Identify the item in the list below that is NOT one of those three
types of returns. (Points : 1)
the actual rate of return
the expected rate of return
the risk-free rate of return
the required rate of return