Stock A has a systematic risk of . The risk-free rate is and the return on the A = 1. 5 r F = 2% market portfolio is r . The last dividend paid was . The growth rate of M = 12% D 0 = $2. 25 dividends in the first period is g , and from the second period on is . 1 = 3% If the actual rate of return is 14%, Stock As price is $19.31, and I. Stock A is overpriced and should be sold II. Stock A has a Jensens Alpha of -3% III. Stock A is in equilibrium a. I only b. II only c. III only d. I and II only e. I, II, and III 5. The market price of any asset, say a stock, is the a. present value of future cash flows plus the current cash flow b. future value of cash flows c. the sum of all cash flows d. the present value of future cash flows e. same as its book value 6. As the required rate of return on an asset increases I. Asset prices decrease because the cash flows decrease II. Asset prices decrease because the present value of cash flows decreases III. Asset prices decrease because there is a negative relationship between prices and returns a. I only b. II only c. III only d. I and II e. II and III 7. Stock XYZ has a variance of and a systematic risk of . If the variance of XYZ 2 = 25 XYZ = 0. 75 the market portfolio is , then the amount of unsystematic risk is M 2 = 40 a. 2.5 b. 0 c. 30 d. 15 e. -2.5 8. Arbitrage I. Has a net investment of $0 II. Has a return of 0% if the assets are in equilibrium III. Does not contribute to market equilibrium a. I, II, and III b. III only c. I only d. II only e. I and II 9. If an asset is not correctly priced according to the SML (or CAPM), a. Jensens Alpha will not be equal to 0 b. Its Treynor ratio will be different than the Treynor ratio for the market portfolio c. There is an arbitrage opportunity d. a, b, and c are all correct e. Only a and c are correct 10. A preferred stock pays a constant dividend of $1.50. If the price is currently $20, the required rate of return is, a. 3% b. 7.5% c. 3.75% d. 10% e. 4%