Question 12 pts

What is the standard deviation of return of a stock that produced returns of 10%, 20%, 30%, and 40% in the last four periods?

11%

10%

13%

12%

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Question 22 pts

A stock provides an (expected) return of 16%. The risk free rate (e.g., T-Bill rate) is 3%. What is the risk premium for the stock?

3%

10%

13%

16%

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Question 31 pts

Why do stock market investors appear not to be concerned with unique (firm specific) risks when calculating expected rates of return?

They can build portfolios with zero total risk.

There is no method to quantify unique risks.

Risk premium for risky assets includes a component to compensate for unique risk.

Unique risks can be eliminated through diversification.

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Question 41 pts

The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio for which of the following reasons?

Individual stocks offer higher returns.

Individual stocks have more systematic risks.

Individual stocks have no diversification of risk.

Individual stocks do not have unique risk.

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Question 52 pts

Based on the corporate tax table below, what is the average tax rate for a firm with $120,000 taxable income?

Taxable Income Marginal Tax Rates

$0 - 50,000 15%

50,001 - 75,000 25%

75,001 - 100,000 34%

100,001 - 335,000 39%

335,001 - 10,000,000 34%

10,000,001 - 15,000,000 35%

15,000,001 - 18,333,333 38%

18,333,334 + 35%

30%

20%

15%

25%

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Question 61 pts

When is it appropriate to include sunk costs in the evaluation of a project?

Include sunk costs if they are considered to be overhead costs.

Include sunk costs when they are relatively large.

It is never appropriate to include sunk costs.

Include sunk costs if they improve the projects NPV.

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Question 71 pts

A firm has a piece of land that was unused, but plans to build a new office complex on it in a new capital project. The market value of the land should be considered as a component of project cash flows provided that the land:

can be depreciated going forward.

has identifiable market value as it is an opportunity cost.

has been fully depreciated as the market value a sunk cost.

has the same market value as the book value.