rates, inflation, and economic growth are economic factors that are examples A) market risk 30) Intcrest of B) external factors that are neither firm specific risk nor market risk C) firm-specific risks that ean be diversified away D) None of these choices are correct. of the following describes what will occur as you randomly add stocks to your A) Both the diversifiable and nondiversifiable risk will decrease. B) The nondiversifiable risk will decrease. C) The portfolio return will increase. D) The diversifiable risk will decrease. 31) Which portfolio? 32) Which of the following is NOT a necessary condition for an efficient market? A) no prohibitively high barriers to entry B) many buyers and sellers C) no trading or transaction costs D) free and readily available information available to all participants 33) U.S. Bancorp holds a press conference to announce a positive news event that was unexpected to the market. As soon as the announcement is made, the stock price increases $8 per share but then over the next hour the price falls resulting in a net increase of only $4. Given this information which of the following statements is correct? A) This is an example of a semi-strong efficient market. B) This is an example of a market underreaction. C) This is an example of a market overreaction. D) none of these choices are complete 34) Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. By how much does Stock A's risk premium exceed the risk premium of Stock B? A) 7.00 B) 3.25 C) 8.00 D) 6.25 percent percent percent percent 35) 35) Which of the following is incorrect? A) It is important for financial managers to understand market efficiency because it helps them understand how their stock prices will react to different types of decisions and news announce their stock is overvalued. their stock is undervalued. ments. firms would not want to repurchase shares of common stock if they feel B) Most C) Most firms would D) none of these choices are complete. want to sell additional shares of common stock if they feel 36) Which of these statements is true regarding calculating A) If we are calculating WACC for the firm, weights for WACC? then equity, preferred stock and debt would be the entire book value of each source of capital would be the entire market value of each source of capital would be the entire book value of each source of capital. would be the entire market value of each source of capital. B) If we are calculating WACC for the firm, then equity, preferred stock and debt C) If we are calculating WACC for a projet,then equity, preferred stock D) If we are calculatin g WACC for a project, then equity, preferred stock and debt 37) Which of the following statements is true? 37) A) It the new projeet s riskier than the firm's existing projects, then it should be B) If the new project is riskier than the firm's existing projects, then it should be C) If the new projec D) The new project's risk is not a factor in determining its cost of capital. charged a lower cost of capital. charged the firm's cost of capital. charged a higher cost of capital. t is riskier than the firm's existing projects, then it should be Why do we use market-value weights instead of book-value weights? 38) A) Because we are interested in determining what the cost of financing the firm's s would be given today's market situation and the component costs the firm currently faces, not what the historical prices would have been. B) Because firms often "window-dress their financial statements. C) Because it is required in the Sarbanes-Oxley regulations. D) None of these choices are correct
