1) Bank of America Corp. (BAC) has a beta of 1.16, is selling for $48.17, and will pay a $1.07 dividend at the end of the year. If the stock is priced at $50.56 at year-end, it is __________, so __________ it. Assume the risk-free rate is 4.15%, and the expected market return is 6.84%.

A. underpriced / buy

B. overpriced / sell

C. fair-valued / hold

D. none of the above and further information required.

2) Nora is currently holding 75 shares of American Express Co. (AXP, $170.82 per share), 26 shares of PayPal Holdings Inc (PYPL, $57.66 per share), and 35 shares of Chipotle Mexican Grill (CMG, $2229.48 per share) in her secret portfolio. To purchase fancy Christmas gifts, she is planning to short the 26 shares of PYPL. As a result of her action, Noras portfolio would

A. reduce the free cash flows.

B. increase purchasing power.

C. increase the volatility of returns.

D. reduce the probability of high returns.

3) The net present value (NPV) is a direct measure of the expected increase in the firms value and considers the size of the project.

Select one:

True

False

4) A given quoted as a 6.62% nominal interest rate and has an effective annual rate (EAR) of 6.82%. What is the compounding frequency during the year? Assume that a year has 52 weeks.

A. Semiannually

B. Quarterly

C. Monthly

D. Daily