Write in the answer booklet the letter corresponds to the one alternative that best completes the statement or answers the question. Each question is worth one mark.

1. Suppose that your company is expected to pay a dividend of $1.70/share next year. There has been a steady growth in dividends of 5.1% per year and the market expects that to continue. The current price is $35. What is the cost of equity?
2. a) 0.099 b) 0.200 c) 0.051 d) 0.102
3. Which one of the following is best classified as unsystematic risk?
4. a)An unexpected recessionary period
5. b)An unexpected increase in interest rates
6. c)Labour Strike
7. d)A sudden increase in the inflation rate
8. The goal of diversification is to eliminate:
9. a)T otal risk
10. b)The market risk premium
11. c)Systematic risk
12. d)Unsystematic risk
13. A risk premium is defined as:
14. a)The expected market return
15. b)The premium you have to pay for investing in risky assets
16. c)The premium you have to pay for investing in assets that have high returns with
17. low risk.
18. d)The extra return received on an asset above the risk free rate
19. What is the Beta of the market?
20. a)0
21. b)1
22. c)2
23. d)Depends on the systematic risk in the market risk in the market

HC2091 Business Finance Trimester 2 2017

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1. When a financial market reflects all the available information in the prices of the securities, the market is referred to as:
2. a)Primary market
3. b)Secondary market
4. c)Efficient capital market
5. d)Traditional market
6. A premium bond is a bond that:
7. a)Has a market price less than its par value
8. b)Has a market price equal to its par value
9. c)Has a market price which exceeds its par value
10. d)Has a market price determined by the investment banks
11. If you invest $5,000 now, and your investment pays 12% per annum, how much will you have in three years if compounded quarterly?
12. a) $7,128.80 b) $7,218.80 c) $7,812.80 d) $7,182.80
13. Suppose your company has an equity beta of 0.58 and the current risk-free rate is 6.1%. If the expected market risk premium is 8.6%, what is your cost of equity capital?
14. a) 13.11%. b) 10.11% c) 12.32%. d) 11.09%.
15. Security Market Line (SML) is trying to display the relationship between:
16. a)Systematic risk and unsystematic risk
17. b)Risk and return
18. c)Assets and liabilities
19. d)Equities and liabilities