1. In the years ahead the market risk premium is expected to fall, while the risk-free rate is expected to remain atcurrent levels. Given this forecast, which of the following statements is most correct?

A) The required return will increase for stocks with a beta less than 1.0 and will decrease forstocks with a beta greater than 1.0.

B) The required return will fall for all stocks but will fall less for stocks with higher betas.

C) The required return will fall for all stocks but will fall more for stocks with higher betas.

D) The required return on all stocks will remain unchanged.

E) The required return for all stocks will fall by the same amount.

2. Harbucks Coffee is a constant growth stock selling for its equilibrium price of $40. Harbucks has a betaof 1.2 and the current dividend is $1.20. What is Harbucks expected constant growth rate if therisk-free rate is 3% and the market return is 12%?

A) 14.0%

B) 10.8%

C) 14.4%

D) 10.5%

E) 13.8%

3. If the constant growth model is to give a "reasonable" valuation of a stock, which of the following is nota valid assumption for the model?

A) A growth rate greater than the required rate of return

B) An exceptionally high required rate of return

C) A growth rate of zero

D) A negative growth rate

E) All of the above are valid assumptions for the model.

4. An analyst seeks to determine the value of Bulldog Industries. After careful research, the analyst believes thatfree cash flows for the firm will be $80 million in the upcoming year (year 1) and will grow at 10% annually foreach of the two following years (years 2 and 3). The free cash flows will grow at a rate of 5% after year 3. Whatis the Terminal Value (in millions of $) of Bulldog at the end of year 3 at a WACC of 10%?

A) 1,936

B) 2,033

C) 1,016

D) 2,274

5. Consider the following information and then calculate the required rate of return for the Global Investment Fund,which holds 4 stocks. The market's required rate of return is 9.50%, the risk-free rate is 7.00%, and the Fund'sassets are as follows:Stock Investment BetaA $200,000 1.50B $300,000 -0.50C $500,000 1.25D $1,000,000 0.75

A) 8.91%

B) 10.42%

C) 6.77%

D) 10.06%

E) 8.64%

6 Which of the following (all other factors held constant) will cause an increase in a stocks value?

A) An increase in the risk-free rate

B) A decrease in the stocks bet

C) An increase in the market risk premium

D) A decrease in the constant growth rate in dividends

7. Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset heldin a diversified portfolio?

A) Standard deviation; correlation coefficient.

B) Coefficient of variation; beta.

C) Beta; beta.

D) Variance; correlation coefficient.

E) Beta; variance.

8 Here are the expected returns on two stocks:Probability X Y 0.1 -20% 10% 0.8 20 15 0.1 40 20

What is stock Xs coefficient of variation?

A) 1.56

B) 0.96

C) 0.78

D) 0.64

E) 1.32