7. You are thinking about purchasing 1,000 shares of stock in the following firms:

Number of Shares Firms Beta

Firm A 100 0.75

Firm B 200 1.47

Firm C 300 0.82

Firm D 400 1.60

If you purchase the number of shares specified, then the beta of your portfolio will be:

a. 1.10.

b. 1.20.

c. 1.00.

d. Cannot be determined with information given.

8. Which of the following statements about bonds is true?

a. If market interest rates are below a bonds coupon interest rate, then the bond will sell below its par value.

b. Long-term bonds have less interest rate risk than do short-term bonds.

c. Bond prices move in the same direction as market interest rates.

d. As the maturity of a bond approaches, its market value approaches its par value.

9. When the intrinsic value of an asset exceeds the market value:

a. the asset is undervalued to the investor.

b. the asset is overvalued to the investor.

c. market value and intrinsic value are the same; therefore, this could not happen.

d. none of the above.

10. The discount rate used to value a bond is:

a. the coupon interest rate.

b. determined by the issuing company.

c. fixed for the life of the bond.

d. the market rate of interest.

11. As interest rates and consequently investors required rates of return change over time, the ____________ of outstanding bonds will also change.

a. maturity date

b. coupon interest payment

c. par value

d. price

12. Common stockholders expect greater returns than bondholders because:

a. they have no legal right to receive dividends.

b. they bear greater risk.

c. in the event of liquidation, they are only entitled to receive any cash that is left after all creditors are paid.

d. all of the above.