1. A "make-whole" call provision on a bond provides for:

Choices:

call prices that vary with the funds available in a sinking fund.

a call price equal to the bond's approximate market value at the time of call.

a call price equal to the face value plus all accrued interest to date.

2. Which one of these statements correctly reflects historical history from 1926 through 2012?

Choices:

The return on U.S. Treasury bills has exceeded the rate of inflation every single year.

In 2012, the rate of inflation was slightly higher than the average inflation rate for the period of 1926 through 2012.

U.S. Treasury bills have had a positive rate of return every single year.

3. A portfolio contains four assets. Asset 1 has a beta of .7 and represents 35 percent of the portfolio. Asset 2 has a beta of 1.3 and represents 20 percent of the portfolio. Asset 3 has a beta of 1.1 and is 25 percent of the portfolio. Asset 4 has a beta of 2.16. What is the portfolio beta?

Choices:

1.642

1.480

1.264

-1.212

4. Which one of these will produce an acceptable estimate of the value of the market risk premium?

Choices:

Total dividends paid by the S&P 500 firms for a 1-year period divided by the U.S. Treasury bill rate

Average rate of return on the S&P 500 plus the risk-free rate

Rate computed using the CAPM and a beta of 1

Dividend yield of the S&P 500 + Consensus forecast of future dividend growth - U.S. Treasury bill rate

5. Which one of these statements related to beta is correct?

Choices:

The beta of a risk-free security is set at 1.

Beta measures the risk of a single security if held in a large, diversified portfolio.

The higher the beta the lower the risk of a security.

6. Buster s target debt-to-equity ratio is .6, its cost of equity is 11.8 percent, and its beta is 1.2. The aftertax cost of debt is 6.4 percent, the tax rate is 34 percent, and the risk-free rate is 3.2 percent. What discount rate should be assigned to a new project the firm is considering if the project's beta is estimated at .87?

Choices:

8.30%

9.44%

9.67%

7. Clinton is considering a project that costs $3,200 will produce cash inflows of $980 a year for 4 years. The project has a required rate of return of 8.75 percent. What is the discounted payback period?

Choices:

4.18 years

Never

3.82 years