Q1. The _____ divided by the beta of the market is equal to the slope of the Security Market Line.

Select one:

a. total return of the market

b. risk-free rate of return

c. nominal return of the market

d. market risk premium

e. real return of the market

Q2.

A firm's stock has a required return of 10%. The stock's dividend yield is 4%. What is the dividend the firm is expected to pay over a one year period if the current stock price is $80?

Select one:

a. $3.60

b. $2.80

c. $2.00

d. $2.40

e. $3.20

Q3.

Given the following information, what is the standard deviation of stock A if it has an expected return of 30% in a boom economy, an expected return of 18% in a good economy, and an expected return of 2% in a recession? The probabilities of boom, normal, recession are 0.2, 0.6, and 0.2, respectively.

Select one:

a. 0.0703

b. 0.0128

c. 0.0697

d. 0.0891

e. 0.0527

Q4.

Watson's Automotive has a $375,000 bond issue outstanding that is selling at 110 percent of face value. Watson's also has 21,000 shares of common stock outstanding with a market price of $21 a share. What is the weight of the debt as it relates to the firm's weighted average cost of capital?

Select one:

a. 50 percent

b. 42 percent

c. 46 percent

d. 48 percent

e. 40 percent

Q5.

A firm has $500 in debt at a cost of 7%, a 34% tax rate, a total firm value of $1.000, and an unlevered return of 11.5%. What is the WACC?

Select one:

a. 9.72%

b. 9.55%

c. 11.84%

d. 10.57%

e. 11.41%

Q6. Etling Inc.'s dividend is expected to grow at 8% for the next two years and then at 3% forever. If the current dividend is $3 and the required return is 15%, what is the price of the stock?

Select one:

a. $26.00

b. $27.58

c. $25.10

d. $25.54

e. $28.17