1) Common stockholders are sometimes referred to as?
________.
A. managers
B. creditors
C. non preemptive right holders
D. residual owners
2) Risk that affects all firms is called? ________.
A. maturity risk
B. unsystematic risk
C. nondiversifiable risk
D. reinvestment risk
3) Asset P has a beta of 0.9. The risk?free rate of return
is 8? percent, while the return on the market portfolio of assets is 14
percent. The? asset’s required rate of return is? ________.
A. 6.0 percent
B. 22.0 percent
C. 13.4 percent
D. 15.4 percent
4) An increase in the Treasury Bill rate? ________.
A. has no effect on the required rate of return of a common
stock
B. doubles the required rate of return of a common stock
C. increases the beta of a common stock
D. increases the required rate of return of a common stock
5) An efficient portfolio is one that? ________.
A. maximizes return for a given level of risk
B. consists of a single? asset, which gives maximum return
C. maximizes return at all risk levels
D. guarantees a predetermined rate of return
6) Which of the following is a marketable? security?
A. provident fund
B. forward contracts
C. Treasury bill
D. mutual funds
7) Dividends in arrears that must be paid to the preferred
stockholders before payment of dividends to common stockholders are? ________.
A. convertible
B. participating
C. nonparticipating
D. cumulative
8) Preferred stock is valued as if it were a? ________.
A. perpetuity
B. bond
C. fixed?income obligation
D. common stock
9) Rational buyers and sellers use their assessment of an?
asset’s risk and return to determine its value. Relative to this? concept,
which of the following is? true?
A. To a seller the? asset’s value represents the price at
which he acquired the asset.
B. To a buyer the? asset’s value represents the minimum
price that he or she would pay to acquire it.
C. To a seller the? asset’s value represents the maximum
sale price.
D. To a buyer the? asset’s value represents the maximum
price that he or she would pay to acquire it.
10) The use of the? ________ is especially helpful in
valuing firms that are not publicly traded.
A. present value of the dividends
B. book value
C. liquidation value
D. ?P/E multiple
11) If bankruptcy were to? occur, ________ would have the
first claim on assets.
A. unsecured creditors
B. secured creditors
C. preferred stockholders
D. equity stockholders
12) Combining two assets having perfectly negatively
correlated returns will result in the creation of a portfolio with an overall
risk that? ________.
A. remains unchanged
B. increases to a level above that of either asset
C. decreases to a level below that of either asset
D. stabilizes to a level between the asset with the higher
risk and the asset with the lower risk
13) If a manager prefers investments with greater risk even
if they have lower expected? returns, then he is following a? ________
strategy.
A. risk?averse
B. risk?seeking
C. risk?neutral
D. risk?indifferent
14) Review Question? 8-11 How are total? risk,
nondiversifiable? risk, and diversifiable risk? related? Why is
nondiversifiable risk the only relevant risk??
15) Milton Glasses recently paid a dividend of? $1.70 per?
share, is currently expected to grow at a constant rate of? 5%, and has a
required return of? 11%. Milton Glasses has been approached to buy a new
company. Milton estimates if it buys the? company, its constant growth rate
would increase to? 6.5%, but the firm would also be? riskier, therefore
increasing the required return of the company to? 12%. Should Milton go ahead
with the purchase of the new? company?
A. ?Yes, because the value of the Milton Co. will increase
by? $4..59 per share
B. ?Yes, because the value of the Milton Co. will increase
by? $3.17 per share
C. ?No, because the value of the Milton Co. will decrease
by? $3.17 per share
D. ?Yes, because the value of the Milton Co. will increase
by? $2.56 per share
16) An increase in the beta of a? corporation, all else
being the? same, indicates? ________.
A. a decrease in? risk, a lower required rate of? return,
and hence a higher share price
B. a decrease in? risk, a higher required rate of? return,
and hence a lower share price
C. an increase in? risk, a lower required rate of? return,
and hence a higher share price
D. an increase in? risk, a higher required rate of? return,
and hence a lower share price
?17) Strikes, lawsuits, regulatory? actions, or the loss of
a key account are all examples of? ________.
A. market risk
B. diversifiable risk
C. economic risk
D. systematic risk
18) A proxy battle is the attempt by? ________.
A. a non management group to unseat the existing management
and gain control of the firm
B. the management to dismiss the board of directors for
their incapability to manage the operations
C. the creditors of a bankrupt corporation to seize assets
of the corporation
D. the employees to form trade unions to influence decisions
on behalf of members
19) The? ________ of a given outcome is its chance of
occurring.
A. reliability
B. dispersion
C. probability
D. standard deviation
