Which one of the following explains systemic risk?A. Hazard that affect a large number of legacy B. An individual security"s full risk C. Diversifiable riskD. Asset particular riskE. Risk distinctive to a firm"s management
Which among the adhering to terms finest refers come the practice of investing in a selection of diverse assets as a way of reducing risk?A. SystematicB. Unsystematic C. DiversificationD. Security market lineE. Resources asset pricing model
The systematic risk principle states that the intended return ~ above a risky legacy depends only on which one of the following?A. Distinctive riskB. Diversifiable risk C. Asset-specific riskD. Industry risk E. Unsystematic risk
The security market line is a linear role which is graphed by plot data points based on the relationship between which 2 of the complying with variables?A. Risk-free rate and betaB. Market rate the return and also betaC. Market rate of return and also the risk-free price D. Risk-free rate and also the sector rate the returnE. Supposed return and also beta
Which among the following is the slope of the security market line?A. Risk-free rateB. Sector risk premiumC. Beta coefficientD. Threat premium top top an individual asset E. Market rate of return
Which among the adhering to is an example of organized risk?A. Significant layoff through a local manufacturer of strength boatsB. Rise in intake created through a reduction in personal tax prices C. Surprise firing the a firm"s chief financial officerD. Closure that a major retail chain of storesE. Product recall through one manufacturer
Standard deviation procedures _____ risk while beta steps _____ risk.A. Systematic; unsystematic B. Unsystematic; organized C. Total; unsystematicD. Total; organized E. Asset-specific; market
Which one of the following ideal exemplifies unsystematic risk?A. Unexpected financial collapseB. Unexpected boost in attention ratesC. Unexpected increase in the variable prices for a for sure D. Suddenly decrease in inflationE. Expected rise in taxes rates
The hazard premium because that an individual security is based upon which among the following types of risk?A. TotalB. Surprise C. DiversifiableD. Organized E. Unsystematic
Which among the complying with represents the amount of compensation one investor should expect to get for accepting the unsystematic risk associated with an separation, personal, instance security?A. Security beta multiplied by the sector rate that returnB. Market risk premiumC. Defense beta multiply by the market risk premium D. Risk-free rate of returnE. Zero
Portfolio diversification eliminates which one of the following?A. Full investment risk B. Portfolio threat premium C. Market riskD. Unsystematic danger E. Reward for bearing risk
The beta of a risky investment portfolio (assuming no take out loan or shortselling) can not be much less than _____ nor better than _____.A. 0; 1B. 1; the market betaC. The lowest individual beta in the portfolio; sector betaD. The industry beta; the highest individual beta in the portfolioE. The lowest individual beta in the portfolio; the highest individual beta in the portfolio
Assume you very own a investment portfolio of diverse securities which room each effectively priced. Offered this, the reward-to-risk ratio:A. For the portfolio must equal 1.0.B. For the portfolio have to be less than the sector risk premium.C. For each security should equal zero.D. That each security is equal to the risk-free rate.E. Of each security should equal the steep of the security market line.

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Based ~ above the resources asset pricing model, investors space compensated based on which of the following? I. Industry risk premiumII. Portfolio traditional deviationIII. Investment portfolio betaIV. Risk-free rateA. I and also III onlyB. II and IV onlyC. I, II, and also III onlyD. I, III, and IV just E. I, II, III, and also IV
Ted is do the efforts to decision what cost of funding he have to assign to a project. Which among the following should be his primary consideration in this decision?A. Lot of debt used to finance the projectB. Use, or absence thereof, of preferred stock come finance the project C. Mix that funds provided to finance the projectD. Hazard level the the job E. Size of the project"s life
Which the the following are weakness of the dividend growth model? I. Industry risk premium fluctuationsII. Absence of dividends for some firmsIII. Reliance on historical betaIV. Sensitivity of model to dividend growth rateA. II onlyB. I and also II onlyC. I and also III onlyD. II and also IV onlyE. I, II, III, and also IV
All rather constant, i beg your pardon of the following will rise the ahertax cost of debt for a firm? I. Increase in the yield to maturity the the firm"s superior debtII. To decrease in the productivity to maturity the the firm"s superior debtIII. Boost in the firm"s taxes rateIV. To decrease in the firm"s taxation rateA. Ns onlyB. I and also III onlyC. I and IV onlyD. II and also III onlyE. II and also IV only
Which among the complying with is the pre-tax price of debt?A. Typical coupon price on the firm"s exceptional bondsB. Coupon rate on the firm"s latest bond issueC. Weighted median yield-to-maturity ~ above the firm"s superior debt D. Average present yield top top the firm"s exceptional debtE. Yearly interest split by the industry price per bond because that the latest bond issue
The price of wanted stock:A. Rises when a firm"s tax price decreases. B. Is consistent over time.C. Is unaffected by alters in the industry price.D. Is same to the stock"s dividend yield. E. Increases as the price that the stock increases.
Which one of the adhering to represents the price of return a firm must earn ~ above its assets if that is to preserve the current value the its securities?A. Cost of equityB. Interior rate the returnC. After tax expense of debtD. Weight average price of resources E. Debt-equity ratio
Which among the adhering to statements is correct, every else organized constant?A. Beta is provided to compute the return top top equity and the conventional deviation is used to compute the return ~ above preferred.B. A decrease in a firm"s WACC will rise the attractiveness that the firm"s invest options.C. The aftertax price of debt increases when the market price of a link increases.D. If you have actually both the dividend growth and the security industry line"s expenses of equity, you need to use the greater of the two approximates when computing WACC.E. WACC is only applicable come firms that issue both common and also preferred stock.
A firm has a expense of equity of 13 percent, a cost of wanted of 11 percent, and an aftertax price of blame of 6 percent. Given this, which one of the following will increase the firm"s weighted average price of capital?A. Boosting the firm"s taxes rateB. Issuing brand-new bonds at par C. Redeeming share of typical stockD. Raising the firm"s beta E. Increasing the debt-equity ratio
Old city Industries has three divisions. Department X has remained in existence the longest and also has the many stable sales. Department Y has remained in existence for five years and is slightly less risky than the all at once firm. Division Z is the research and advance side of the business. When allocating funds, the firm should probably:A. Require the highest possible rate of return from division X since it has remained in existence the longest.B. Entrust the highest expense of capital to department Z since it is most most likely the riskiest that the three divisions.C. Usage the firm"s WACC together the price of funding for division Z as it provides evaluation for the entire firm.D. Use the firm"s WACC together the expense of funding for departments A and also B because they are part of the revenue-producing work of the firm.E. Allocate funding funds evenly amongst the divisions to maintain the current funding structure that the firm.

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A firm provides its weighted average price of capital to evaluate the proposed jobs for every one of its differing divisions. By act so, the firm:A. Immediately gives preferential therapy in the assignment of funds to that is riskiest division.B. Encourages the division managers to only recommend their most conservative projects.C. Maintains the present risk level and also capital framework of the firm. D. Instantly maximizes the total value produced for its shareholders. E. Allocates capital funds evenly among its divisions.
Boone brother remodels homes and also replaces windows. Ace home builders constructs new homes. If Boone brother considers broadening into new home construction, it need to evaluate the development project using which one of the adhering to as the compelled return because that the project?A. Boone Brothers" cost of resources B. Ace Builders" expense of capitalC. Mean of Boone Brothers" and also Ace Builders" price of funding D. Reduced of Boone Brothers" or Ace Builders" cost of resources E. Higher of Boone Brothers" or Ace Builders" price of capital




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