FIN 370 Week 4 Apply: Week 4 Exercise

Review the Week 4 “Knowledge Check” in Connect® in preparation for this assignment.

Complete the Week 4 “Exercise” in Connect®.

Note: You have only one attempt available to complete this assignment. Grades must be transferred manually to eCampus by your instructor. Don’t worry, this might happen after your due date.

Which of the following is correct?

Multiple Choice

All of the statements are correct.

In some years, long-term Treasury bonds performed better than stocks.

Over a long time frame, stocks have performed better than long-term Treasury bonds.

Average stock returns are not an indication of what an investor may earn in any one year.

The optimal portfolio for you will be:

Multiple Choice

the one that reflects the amount of risk that you are willing to take.

the one that offers the highest returns.

the one that offers the lowest correlation.

the one that offers the most diversification.

Year-to-date, Oracle had earned a 12.57 percent return. During the same time period, Valero Energy earned −9.32 percent and McDonald’s earned 3.45 percent. If you have a portfolio made up of 60 percent Oracle, 20 percent Valero Energy, and 20 percent McDonald’s, what is your portfolio return?

Multiple Choice

6.70 percent

10.10 percent

6.37 percent

8.45 percent

Which of these is the reward for taking systematic stock market risk?

Multiple Choice

Required return

Risk premium

Market risk premium

Risk-free rate

You have a portfolio consisting of 20 percent Boeing (beta = 1.3) and 40 percent Hewlett-Packard (beta = 1.6) and 40 percent McDonald’s stock (beta = 0.7). How much market risk does the portfolio have?

Multiple Choice

This portfolio has 28 percent less risk than the general market.

This portfolio has 18 percent more risk than the general market.

This portfolio has 18 percent less risk than the general market.

This portfolio has 28 percent more risk than the general market.

A company’s current stock price is $22.00 and its most recent dividend was $0.75 per share. Since analysts estimate the company will have a 12 percent growth rate, what is its expected return?

Multiple Choice

12.00 percent

15.82 percent

3.00 percent

3.48 percent

Which of the following will impact the cost of equity component in the weighted average cost of capital?

Multiple Choice

Beta

All of the above

Expected return on the market

The risk-free rate

The reason that we do not use an after-tax cost of preferred stock is:

Multiple Choice

because most of the investors in preferred stock do not pay tax on the dividends.

because preferred dividends are paid out of before-tax income.

None of the options are correct.

because we can only estimate the marginal tax rate of the preferred stockholders.

Diddy Corp. stock has a beta of 1.0, the current risk-free rate is 5 percent, and the expected return on the market is 15.5 percent. What is Diddy’s cost of equity?

Multiple Choice

14.20 percent

18.50 percent

16.30 percent

15.50 percent

Which of the following is a principle of capital budgeting which states that the calculations of cash flows should remain independent of financing?

Multiple Choice

Financing principle

Separation principle

Generally accepted accounting principle

WACC principle

Review the Week 4 “Knowledge Check” in Connect® in preparation for this assignment.

Complete the Week 4 “Exercise” in Connect®.

Note: You have only one attempt available to complete this assignment. Grades must be transferred manually to eCampus by your instructor. Don’t worry, this might happen after your due date.

Which of the following is correct?

Multiple Choice

All of the statements are correct.

In some years, long-term Treasury bonds performed better than stocks.

Over a long time frame, stocks have performed better than long-term Treasury bonds.

Average stock returns are not an indication of what an investor may earn in any one year.

The optimal portfolio for you will be:

Multiple Choice

the one that reflects the amount of risk that you are willing to take.

the one that offers the highest returns.

the one that offers the lowest correlation.

the one that offers the most diversification.

Year-to-date, Oracle had earned a 12.57 percent return. During the same time period, Valero Energy earned −9.32 percent and McDonald’s earned 3.45 percent. If you have a portfolio made up of 60 percent Oracle, 20 percent Valero Energy, and 20 percent McDonald’s, what is your portfolio return?

Multiple Choice

6.70 percent

10.10 percent

6.37 percent

8.45 percent

Which of these is the reward for taking systematic stock market risk?

Multiple Choice

Required return

Risk premium

Market risk premium

Risk-free rate

You have a portfolio consisting of 20 percent Boeing (beta = 1.3) and 40 percent Hewlett-Packard (beta = 1.6) and 40 percent McDonald’s stock (beta = 0.7). How much market risk does the portfolio have?

Multiple Choice

This portfolio has 28 percent less risk than the general market.

This portfolio has 18 percent more risk than the general market.

This portfolio has 18 percent less risk than the general market.

This portfolio has 28 percent more risk than the general market.

A company’s current stock price is $22.00 and its most recent dividend was $0.75 per share. Since analysts estimate the company will have a 12 percent growth rate, what is its expected return?

Multiple Choice

12.00 percent

15.82 percent

3.00 percent

3.48 percent

Which of the following will impact the cost of equity component in the weighted average cost of capital?

Multiple Choice

Beta

All of the above

Expected return on the market

The risk-free rate

The reason that we do not use an after-tax cost of preferred stock is:

Multiple Choice

because most of the investors in preferred stock do not pay tax on the dividends.

because preferred dividends are paid out of before-tax income.

None of the options are correct.

because we can only estimate the marginal tax rate of the preferred stockholders.

Diddy Corp. stock has a beta of 1.0, the current risk-free rate is 5 percent, and the expected return on the market is 15.5 percent. What is Diddy’s cost of equity?

Multiple Choice

14.20 percent

18.50 percent

16.30 percent

15.50 percent

Which of the following is a principle of capital budgeting which states that the calculations of cash flows should remain independent of financing?

Multiple Choice

Financing principle

Separation principle

Generally accepted accounting principle

WACC principle