Multipel Choise question

1. What is the relationship between the beta of a stock and its return?

1. The higher the risk the lower the return
2. The higher the risk the higher the return
3. The return is constant no matter the level of risk
4. Risks and returns are uncorrelated in finance

2.An investor buys some shares of BHP at $65.00. He sells the shares at $64.50 after receiving a dividend payout of $3.50. What rate of return has the investor earned over the holding period?

1. 3.50%
2. 3.85%
3. -1.54%
4. 1.54%

7. Rico corporation paid a dividend of $3.5 today. The growth rate for the company is 1% and it has a required rate of return of 3%. Calculate the price of the shares of Rico. A. $167.75

2. $116.67
3. $3.85
4. $176.75

8. You were promised the sum of $1,000 each year forever. Given that interest rate is 4% per annum, what is the value of this perpetuity today if you are getting the first payment in Year 2?

1. $25,000.00
2. $24,038.46
3. $1,040.00
4. $1,060.00

9. You will be given the sum of $20,000 in five years from now. What is the present value of the money if interest rate is 5%?

1. $20,000.00
2. $15,670.52 C. $25,000.00 D. $17,007.55

10. Your investment of $100,000 will yield $30,000 in year 1, $40,000 in year 2, $50, 000 in year 3. If the appropriate discount rate is 6%, what is the present value of the investment?

1. 105,882.70
2. $120,000.00
3. $220,000
4. $105,288.70

11. Which of the following best explains the meaning and implication of agency cost?
    1. Agency cost is the result of conflict of interest between the principal and the agent. In order to align the interests of the agent (managers) and the owners of the corporations (principal), the agents are given part ownership of the business like stock options.
    2. Agency cost is the result of conflict of interest between the principal and the agent. In order to align the interests of the agent (managers) and the owners of the corporations (principal), the agents are given opportunities to attend meetings occasionally with the principal so as to reconcile their interests.
    3. Agency cost is the result of conflict of interest between the principal and the agent. In order to align the interests of the agent (managers) and the owners of the corporations (principal), the agents are given warnings every now and then that they should not misbehave.
    4. Agency cost is the result of the cordial relationship between the principal and the agent. In order to align the interests of the agent (managers) and the owners of the corporations (principal), the agents are given part ownership of the business like stock options.