1.

Which one of the following measures the amount of systematic risk present in a particular risky asset relative to that in an average risky asset?

Beta coefficient

Mean

Squared deviation

Standard deviation

Variance

2.

What are the arithmetic and geometric average returns for a stock with annual returns of 23 percent, 9 percent, –6 percent, and 12 percent? List the arithmetic answer first.

12.32 percent; 9.50 percent

9.50 percent; 12.32 percent

9.50 percent; 9.00 percent

9.00 percent; 9.50 percent

12.32 percent; 9.00 percent

3.

Dan is a chemist for ABC, a major drug manufacturer. Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:

efficient at any level.

weak form efficient.

aware that the trader is an insider.

semistrong form efficient.

strong form efficient.

4.

Which one of the following is an indicator that an investment is acceptable?

Payback period that exceeds the required period

Internal rate of return that exceeds the required return

Negative average accounting return

Profitability index of zero

Modified internal rate of return equal to zero

5.

What is the profitability index for an investment with the following cash flows given a 9 percent required return?

YearCash Flow

0

–$40,000

1 17,200

2 19,500

3 18,900

1.17

0.85

0.72

1.39

1.09

6.

It will cost $2,900 to acquire a small ice cream cart. Cart sales are expected to be $2,100 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart?

0.46 years

1.38 years

0.72 years

4.14 years

2.17 years

7.

Last year, you purchased a stock at a price of $78.00 a share. Over the course of the year, you received $2.70 in dividends and inflation averaged 3.2 percent. Today, you sold your shares for $82.20 a share. What is your approximate real rate of return on this investment?

12.0 percent

5.6 percent

2.2 percent

8.8 percent8.

You purchased 260 shares of stock at a price of $46.56 per share. Over the last year, you have received total dividend income of $280. What is the dividend yield?

2.3 percent

6.0 percent

1.1 percent

6.5 percent

15.6 percent9.

When, if ever, will the geometric average return exceed the arithmetic average return for a given set of returns?

When the set of returns has a wide frequency distribution.

When all of the rates of return in the set of returns are equal to each other.

Never

When the set of returns includes only risk-free rates.

When the set of returns has a very narrow frequency distribution.

10.

The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to:

produce a positive cash flow from assets.

offset its fixed expenses.

produce a positive annual cash flow.

recoup its initial cost.

offset its total expenses.

11.

A project has an initial cost of $60,000 and a four-year life. The company uses straight-line depreciation to a book value of zero over the life of the project. The projected net income from the project is $2,300, $2,000, $2,400, and $4,500 a year for the next four years, respectively. What is the average accounting return?

9.33 percent

4.67 percent

10.71 percent

18.67 percent

41.17 percent

12.

Which one of the following statements is correct?

When the internal rate of return is greater than the required return, the net present value is positive.

If the IRR exceeds the required return, the profitability index will be less than 1.0.

Projects with conventional cash flows have multiple internal rates of return.

The profitability index will be greater than 1.0 when the net present value is negative.

If two projects are mutually exclusive, you should select the project with the shortest payback period.

13.

Six months ago, you purchased 1,700 shares of ABC stock for $23.58 a share. You have received dividend payments equal to $0.90 a share. Today, you sold all of your shares for $25.86 a share. What is your total dollar return on this investment?

$5,406

$3,876

$1,530

$4,307

$10,81214.

Over the period of 1926-2008, which one of the following investment classes had the highest volatility of returns?

Long-term corporate bonds

Long-term government bonds

Large-company stocks

U.S. Treasury bills

Small-company stocks

15.

If a project with conventional cash flows has a profitability index of 1.0, the project will:

never pay back.

produce more cash inflows than outflows in today's dollars.

have a negative internal rate of return.

have a negative net present value.

have an internal rate of return that equals the required return.

16.

The net present value:

is directly related to the discount rate.

decreases as the required rate of return increases.

is unaffected by the timing of an investment's cash flows.

method of analysis cannot be applied to mutually exclusive projects.

is equal to the initial investment when the internal rate of return is equal to the required return.

17.

Which one of the following is the best example of unsystematic risk?

Decrease in the value of the dollar

Inflation exceeding market expectations

Decrease in corporate tax rates

Increase in consumer spending

A warehouse 18.

Which of the following terms can be used to describe unsystematic risk?

I. asset-specific risk

II. diversifiable risk

III. market risk

IV. unique risk

II, III, and IV only

I, II, and IV only

II and III only

I and IV only

I, II, III, and IV

19.

What is the net present value of a project with the following cash flows and a required return of 13 percent?

YearCash Flow

0

–$48,400

1 13,950

2 37,530

3 3,350

-$4,341.65

-$4,039.83

-$7,722.98

$4,341.65

$4,039.83

20.

Which one of the following will occur when the internal rate of return equals the required return?

The average accounting return will equal 1.0.

The profitability index will equal 1.0.

The profitability index will equal the average accounting return.

The profitability index will equal 0.

The net present value will equal the initial cash outflow.

Subject | Business |

Due By (Pacific Time) | 05/05/2013 10:00 pm |

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