What is the relationship between an effective annual rate (EAR) and the annual percentage rate (APR) which is calculated for truth-in-lending laws for a loan requiring monthly payments?

a. The APR is lower than the EAR.

b. The APR is higher than the EAR.

c. The APR equals the annually EAR.

d. The answer depends on the interest rate.

5) If the coupon rate on an outstanding bond is lower than the yield to maturity, then the price will be:

a. lower than face value.

b. equal to the face value.

c. higher than face value.

d. need more information.

6) Consider a portfolio that consists of two stocks, 75% stock A and 25% stock B. If the expected return on stock A is 10% and expected return on stock B is 5%, what is the expected return on the portfolio?

a) 10%

b) 8.75%

c) 7.5%

d) 5%

7) Consider a portfolio that consists of two stocks, 75% stock A and 25% stock B. If the Beta of stock A is 2.1 and the Beta of stock B is 0.4, what is the beta of the portfolio?

a) 2.1

b) 1.67

c) 1.25

d) 0.4

8) When a project's internal rate of return equals its opportunity cost of capital, then the:

a. project should be rejected.

b. project has no cash inflows.

c. net present value will be positive.

d. net present value will be zero.

9) If a well-diversified portfolio of stocks has an expected return of 25% when the expected return on the market portfolio is 15%, then

a. Treasury bills are offering a 10% yield.

b. The portfolio beta is greater than 1.0.

c. The portfolio beta equals 0.67.

d. The portfolio beta is less than that of the market portfolio.