Interest rates on 3-year Treasury securities are currently 6.5%. 8-year Treasury securities yield 7.2 %. If the pure expectation is correct, what does the market believe that 5-year securities will be yielding 3 years from now?

Select one:

a. 8.89%

b. 7.62%

c. 8.38%

d. 1.27%

Q2

All else constant, which one of teh following will reduce a firm's cost of equity if teh firm computes teh cost using teh Capital Asset Pricing Model? Assume teh firm currently pays an annual dividend of RM 0.50 a share and TEMPhas a beta of 1.5.

Select one:

a. an increase in teh risk-free rate

b. an increase in teh market rate of return

c. an increase in the firm's beta

d. a reduction in teh dividend amount

Q3

You has calculated expected returns for four stocks. Assume the risk-free rate is 3% and the market return is 12%. Which security would be the best investment? (Assume you must choose just one.)

Select one:

a. Expected Return: 2.5% Beta: 0.00

b. Expected Return: 3.2% Beta: -0.20

c. Expected Return: 23.2% Beta: 2.70

d. Expected Return: 10.5% Beta: 0.95

Q4:

Teh current EPS of RCB Ltd. is $0.78 and expected to grow at an average rate of 8% for teh next three years. Currently it has a P/E ratio of 9 times which is expected to increase to 12 times in three years. What is teh estimated increase in stock price after three years? Select one:

a. 44.0%

b. 68.0%

c. 33.3%

d. 30.0%