Which one of these will produce an acceptable estimate of the value of the market risk premium?

Total dividends paid by the S&P 500 firms for a 1-year period divided by the U.S. Treasury bill rate

Average rate of return on the S&P 500 plus the risk-free rate

Rate computed using the CAPM and a beta of 1

Dividend yield of the S&P 500 + Consensus forecast of future dividend growth - U.S. Treasury bill rate

Historical rate of return on a market index

Which one of these statements related to beta is correct?

A stock with a high standard deviation will also have a high beta.

The beta of a risk-free security is set at 1.

Beta measures the risk of a single security if held in a large, diversified portfolio.

Beta measures the total risk of a single security whether held independently or as part of a portfolio.

The higher the beta the lower the risk of a security.

Buster s target debt-to-equity ratio is .6, its cost of equity is 11.8 percent, and its beta is 1.2. The aftertax cost of debt is 6.4 percent, the tax rate is 34 percent, and the risk-free rate is 3.2 percent. What discount rate should be assigned to a new project the firm is considering if the project's beta is estimated at .87?

8.30%

9.44%

9.67%

11.8%

11.6%

A portfolio has a beta of 1.24. The portfolio consists of 20 percent U.S. Treasury bills, 30 percent Stock A, and 50 percent Stock B. Stock A has a risk level equivalent to that of the overall market. What is the beta of stock B?

1.79

1.94

1.98

2.02

1.88

Which one of these is a finding of Ritter's study of initial public offerings (IPOs)?

IPO firms tend to lose 10 percent or more of their market value in the two years following their IPO.

The annual returns for IPO firms during the 5-year period following an IPO are about two percent lower than their control group.

Firms with either IPOs or SEPs tend to outperform their control groups for the 5-year period following the issue of the new securities.

Comparable IPO and non-IPO firms had similar returns for the 5-year period following an IPO.

IPOs are generally incorrectly priced at issuance because over the next five years the IPO firm's abnormal returns exceeded 6 percent on average.