1. Which of the following companies would be expected to have lower discount rates?

a. A start-up

b. A company with an unproven technology

c. A business with unpredictable cash flows

d. A mature business

2. ABC Companys stock trades at $40. The firms return on book equity is 10%, its payout ratio is 60%, and its dividend in the current year is $2. What is the firms cost of equity?

a. 9%

b. 4.2%

c. 4%

d. 9.2%

4. A stock with a beta greater than 1.0 has _______.

a. Higher systematic risk than the market

b. Lower systematic risk than the market

c. Lower unsystematic risk than the market

d. Higher unsystematic risk than the market

5. The forward-year multiples are typically preferred to trailing (last twelve month) multiples in comparable companies because Investors are more focused on earnings potential than historical earnings.

a. True

b. False

6. Rallys bonds are priced at 90% of par in the Wall St. Journal. The par value of bond is $1000. The coupon rate is 10%, and they have 5 years remaining until maturity. What is their YTM, based on semi-annual compounding?

a. 12.76%

b. 9.76%

c. 6.38%

d. 6.58%