1.The risk-free rate is currently 6.5%. Acid Battery Company stockholders require a rate of return of 20.99%, and the stock has a beta of 2.1. The expected return to the market is closest to what value?

a.

21.00%

b.

6.90%

c.

10.00%

d.

13.65%

2. TAB announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $.20 a share. The following dividends will be $.30, $.40, and $.50 a share annually for the following three years, respectively. After that, dividends are projected to increase by 3.5% per year. If your desired rate of return is 12% then the price of one share is closest to which value?

a.

$7.25

b.

$9.06

c.

$1.45

d.

$10.58

e.

$5.80

3. Today, you sold 200 shares of SAL, Inc. stock. Your total return on these shares is 12.5%. You purchased the shares one year ago at a price of $24.01 a share. You have received a total of $280 in dividends over the course of the year. Your capital gain amount is closest to what value?

a.

$340

b.

$360

c.

$400

d.

$320

e.

$380

4. Powns has just paid a dividend of $1.75. These dividends are expected to grow at a rate of 5% in the foreseeable future. The risk of this company suggests that future cash flows should be discounted at a rate of 13%. Which of the following amounts is closest to what should be paid for Powns common stock?

a.

$24

b.

$20

c.

$22

d.

$18

5. Your firm is planning to invest in a new electrostatic power generation system. Nicholi Inc is a firm that specializes in this business. Nicholi has a stock price of $25 per share with 18 million shares outstanding. Nicholi's equity beta is 1.18. It also has $220 million in debt outstanding with a debt beta of 0.08. Your estimate of the asset beta for electrostatic power generators is closest to:

a.

0.80

b.

0.90

c.

1.10

d.

0.70

6. Diversification can effectively reduce risk. The total risk of a portfolio is:

a.

the risk related to the market portfolio.

b.

the riskless security risk.

c.

the individual security risk.

d.

the portfolio standard deviation.

7. The EZ Corp. is planning on paying $2.50, $4.50, $5.00, and $7.50 a share over the next four years, respectively. After that the dividend will be a constant $2.10 per share per year. If the market rate of return is 14% then the stock price is closest to what value?

a.

$22.5

b.

$21.5

c.

$18.5

d.

$20.5

e.

$19.5

8. You have created a portfolio where 1/3 of your funds are invested in the market portfolio, 1/3 in an asset with two times as much market risk as the market portfolio and 1/3 in an asset with one-half the amount of risk as the market portfolio. The beta of this portfolio is closest to what value?

a.

2.00

b.

0.50

c.

1.25

d.

2.75

e.

3.50

9. The net income is $150, sales are $200, total assets are $500, and total equity is $400. According to the DuPont system of financial ratio analysis, ROE is about

a.

50%

b.

25%

c.

40%

d.

30%

10. You purchase 1800 shares of stock at a price of $200 per share. One year later, the shares are selling for $230 per share. In addition, a dividend of $4 per share is paid at the end of the year. The holding period return (HPR) for the investment is closest to what value?

a.

21%

b.

13%

c.

19%

d.

17%

e.

15%

11. If the risk of an investment project is different than the firm's risk then:

a.

you must adjust the discount rate for the project based on the firm's risk.

b.

you must adjust the discount rate for the project based on the project risk.

c.

you should exercise risk aversion and use the market rate.

d.

an average rate across prior projects is acceptable because estimates contain errors.

e.

one must have the actual data to determine any differences in the calculations.