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Quiz Number

Question

Answer

1

A company has paid $2 per share in dividends for the past several years and plans to continue to do so indefinitely. If an investor’s required return is 13%, what is the most she should pay for a share of this firm’s stock?

A: $15.38

B: $20.00

C: $22.60

D: $26.13

E: $65.00

2

Bond mutual funds offer the following advantages over direct investment in bonds EXCEPT:

A: Better diversification

B: Transaction cost economies

C: Buy and sell individual bonds at individual investor’s discretion

D: Reinvestment of intermediate cash flows

E: Better liquidity

3

A $1,000 par value bond with a 5% coupon that pays interest semiannually and matures in 2 ½ years and has a current price of $977. What is the annualized yield to maturity?

A: 3.0%

B: 4.0%

C: 5.0%

D: 6.0%

E: 7.0%

4

An immunization strategy protects a portfolio from:

A: Interest rate risk

B: Default risk

C: Liquidity risk

D: Prepayment risk

E: Event risk

5

Market multiple methods include valuations based on all of the following EXCEPT:

A: Price/earnings

B: Price/free cash flow

C: Price/dividends

D: Price/sales

E: All of the above are acceptable market multiples

6

Factors that should be considered in taking a stock option position include:

A: The dividend paid on the underlying stock

B: The volatility of the underlying stock

C: The time to expiration

D: The anticipated direction of market movement

E: All of the above are relevant factors in the option decision

7

A three-year project costs $50,000 and returns $20,000 the first year, $30,000 the second year, and $25,000 the third year. If the required return is 10.0%, what is the Net Present Value (NPV)?

A: $11,758

B: $12,547

C: $25,000

D: $61,758

E: $62,547

8

Disadvantages of investing in the futures market include all of the following EXCEPT:

A: Market is extremely volatile

B: Daily mark-to-market

C: Clearinghouse

D: Possibility of frequent margin calls

E: Possibility of losing more than the original investment

9

A portfolio has a standard deviation of 22%. If the risk-free rate is 3.5%, the expected return on the market portfolio is 12%, and the standard deviation of the market portfolio is 25%, what is the required return on the market portfolio?

A: 7.48%

B: 10.98%

C: 12.00%

D: 13.16%

E: 14.06%

10

Factors that should be considered in the purchase of a stock includes all of the following EXCEPT:

A: Dividend

B: Growth potential

C: Quality of firm’s management

D: Coupon rate on the firm’s bonds

E: Price

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