1. Unsystematic risk exists when the _________________ is too high? A. Nasdaq C.

Question

1. Unsystematic risk exists when the _________________ is too high?

A. Nasdaq C. Risk premium E. None of the above

B. S&P 500 D. Risk free rate

2. If you are choosing bet ween the following projects because they are mutually exclusive which would you choose?

A. NPV 50,001 IRR 8%

C. NPV 49,000 IRR 18%

E. none of the above

B. NPV 50,000 IRR 9%

D. All of the above

3. If our Wacc is 9% and the risk free rate is 1.2% and our company is considering an oil exploration project in Alepo, Syria we would use what as our discount rate to calculate NPV?

A. 1.2% plus the appropriate risk premium

C. 9

B. 4.20% divided by the risk coefficient

D. 9% multiplied by the exchange rate

E. None of the above

4. The Wacc tells us?

A. The appropriate rate of return on an investment of average risk

B. The expected rate of return for a company participating in regular actvities

C. The required rate of return on investments that don’t pose abnormal volatility

D. All of the above

E. None of the above

5. If we have paid dividends 0f 3.00, 3.30 and 3.63 per year and our stock price is 54.00. What is the expected return on the stock?

A. .074

C. .07380

E. none of the above

B. .1378

D. .0285

Explanation / Answer

1)

Unsystematic risk is the risk associated with the specific company. It increases with risk premium earned by the company over risk free rate. If risk premium was higher, unsystematic risk will be high and vice-versa.

Hence, correct option is (C) Risk premium.

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