BUS 401 Week 4 Quiz | Assignment Help | Ashford University
- ashford university / BUS 401
- 02 Nov 2019
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BUS 401 Week 4 Quiz | Assignment Help | Ashford University
Question 1
Using the Capital Asset Pricing Model, estimate the
required rate of return for Caterpillar Incorporated stock if the company’s
beta is 1.87 (as of February 1, 2013). Use a risk-free rate of 3% and a market
risk premium of 6%.
o
8.61%
o
11.22%
o
14.22%
o
16.83%
Question 2
Investors will make an investment if:
o
the historical rate of return exceeds
the expected rate of return.
o
the required rate of return exceeds the
expected rate of return.
o
the expected rate of return exceeds the
actual rate of return.
o
the expected rate of return exceeds the required
rate of return.
Question 3
In the Capital Asset Pricing Model, the market risk
premium is estimated over a long period of time because:
o
more data is always better than less.
o
a longer holding period gives a more
reliable estimate because it is, in effect, a larger sample size.
o
almost all investors hold stocks for
many years, so it matches their investment horizon.
o
historical returns are the best
indicators of future returns.
Question 4
Which of the following is beta is used for?
o
estimating a regression line
o
estimating a firm’s total risk to be
used in the WACC
o
estimating a firm’s market risk and used
with the CAPM
o
estimating the amount of leverage used
by the firm
Question 5
The financing mix reflected in the WACC should:
o
reflect the desired mix and not
necessarily the mix being used to finance a specific project.
o
vary from project to project, depending
on how they are financed.
o
always reflect the firm’s current
capital structure.
o
None of these answers is correct.
Question 6
Total risk is measured by:
o
the standard deviation of returns.
o
the firm’s beta
o
Moody’s, Standard & Poor’s, and
Fitch ratings.
o
the variability of EBIT.
One reason why we are not concerned with
idiosyncratic risk (also called firm-specific risk) is that:
o
most risk is not firm-specific, so we
can ignore it
o
through hedging and insurance, investors
may now invest in stocks with almost no risk exposure of any kind.
o
it is easy and almost costless to
diversify one’s portfolio and eliminate idiosyncratic risk.
o
investing in bonds can offset the idiosyncratic
risks of shares of stock.
Question 8
Which of the following statements regarding the cost
of preferred stock is true?
o
It is typically found by solving for an
annuity’s discount rate
o
It is typically found by solving for an
annuity due’s discount rate.
o
It is found similarly to a perpetuity’s
discount rate but with irregular spacing of the dividends.
o
It is typically found by solving for a
perpetuity’s discount rate.
In the Capital Asset Pricing Model, the market risk
premium is best approximated by:
o
the most recent one-year return on the
S&P 500 Index (or another market index).
o
the long-term
o
the long-term average spread of the
S&P 500 (or another market index) over the yield of long-term government
bonds.
o
the return of the S&P 500 (or
another market index) over the current yield of long-term government bonds.
Question 10
Which of the following statements regarding the cost
of debt is true?
o
The cost of debt for bonds equals the
coupon rate of outstanding bonds.
o
The cost of debt for bonds is found by
dividing the price by the annual coupon.
o
The cost of debt for bonds is found by
calculating their yield to maturity.
o
The cost of debt equals the flotation
costs charged by investment bankers who advise the firm.