Which Of The Following Statements About Risk Is False?
1. When adding new shares to a portfolio, the higher (that is, more positive) the degree of correlation between these shares and those already in the portfolio,
a) the greater the benefits of the additional portfolio diversification
b) the smaller the benefits of the additional portfolio diversification
c) Not enough information given
d) None of the above
2. Portfolio A has but one share, while Portfolio B has 100 shares. Because of diversification, we know that Portfolio B will have the lower systematic risk ie. Portfolio B will have the lower beta.
a) True
b) False
c) Not enough information given
d) None of the above.
3. Which of the following statements about risk is false?
a) Risk requires at least one outcome less favourable than the …show more content…
You are considering the purchase of a common stock that just paid a dividend pf R2.00. You expect this stock to have a growth rate of 30% for the next three years, then to have a long-run normal growth of rate of 10% thereafter. If you require a 15% rate of return, then how much should you be willing to pay for this stock?
a) R71.23
b) R97.50
c) R82.46
d) R79.15
25. Over the past few years, Swanson Company has retained, on average, 70% of its earnings in the business. The future retention rate is expected to remain 70% of earnings, and the long-run earnings growth rate is expected to be 10%. If the risk-free rate is 8%, the expected return on the market is 12%, Swanson’s beta is 2, and the most recent dividend was R1.50. What is a fair market price and P/E ratio for Swanson’s stock today?
a) R27.50; 5 x
b) R33.00; 6 x
c) R25.00; 5 x
d) R22.50; 4.5 x
26. Key differences between common stock and bonds include all of the following EXCEPT
a) common stockholders have a voice in management; bondholders do not.
b) common stockholders have a junior claim on assets and income relative to bondholders.
c) bonds have a stated maturity but stock does not.
d) dividends paid to bondholders are tax-deductible but interest paid to stockholders is …show more content…
c) its excellent merger security.
d) its difficulty to retire.
28. The cost of preferred stock is
a) lower than the cost of long-term debt.
b) higher than the cost of common stock.
c) higher than the cost of long-term debt and lower than the cost of common stock.
d) lower than the cost of convertible long-term debt and higher than the cost of common stock.
29. A proxy battle is the attempt by
a) the creditors of a bankrupt firm to seize assets.
b) the management to dismiss the board of directors.
c) a nonmanagement group to gain control of the management of a firm through the solicitation of a sufficient number of corporate votes.
d) the employees to unionize.
30. Which is least likely?
a) In an efficient market, stock prices adjust quickly to new public information.
b) In an inefficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.
c) If a market is truly efficient, investors should not waste their time trying to find and capitalize on mispriced securities.
d) If the expected return were above the required return, investors would buy the asset, driving its price up and its expected return
a) the greater the benefits of the additional portfolio diversification
b) the smaller the benefits of the additional portfolio diversification
c) Not enough information given
d) None of the above
2. Portfolio A has but one share, while Portfolio B has 100 shares. Because of diversification, we know that Portfolio B will have the lower systematic risk ie. Portfolio B will have the lower beta.
a) True
b) False
c) Not enough information given
d) None of the above.
3. Which of the following statements about risk is false?
a) Risk requires at least one outcome less favourable than the …show more content…
You are considering the purchase of a common stock that just paid a dividend pf R2.00. You expect this stock to have a growth rate of 30% for the next three years, then to have a long-run normal growth of rate of 10% thereafter. If you require a 15% rate of return, then how much should you be willing to pay for this stock?
a) R71.23
b) R97.50
c) R82.46
d) R79.15
25. Over the past few years, Swanson Company has retained, on average, 70% of its earnings in the business. The future retention rate is expected to remain 70% of earnings, and the long-run earnings growth rate is expected to be 10%. If the risk-free rate is 8%, the expected return on the market is 12%, Swanson’s beta is 2, and the most recent dividend was R1.50. What is a fair market price and P/E ratio for Swanson’s stock today?
a) R27.50; 5 x
b) R33.00; 6 x
c) R25.00; 5 x
d) R22.50; 4.5 x
26. Key differences between common stock and bonds include all of the following EXCEPT
a) common stockholders have a voice in management; bondholders do not.
b) common stockholders have a junior claim on assets and income relative to bondholders.
c) bonds have a stated maturity but stock does not.
d) dividends paid to bondholders are tax-deductible but interest paid to stockholders is …show more content…
c) its excellent merger security.
d) its difficulty to retire.
28. The cost of preferred stock is
a) lower than the cost of long-term debt.
b) higher than the cost of common stock.
c) higher than the cost of long-term debt and lower than the cost of common stock.
d) lower than the cost of convertible long-term debt and higher than the cost of common stock.
29. A proxy battle is the attempt by
a) the creditors of a bankrupt firm to seize assets.
b) the management to dismiss the board of directors.
c) a nonmanagement group to gain control of the management of a firm through the solicitation of a sufficient number of corporate votes.
d) the employees to unionize.
30. Which is least likely?
a) In an efficient market, stock prices adjust quickly to new public information.
b) In an inefficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.
c) If a market is truly efficient, investors should not waste their time trying to find and capitalize on mispriced securities.
d) If the expected return were above the required return, investors would buy the asset, driving its price up and its expected return