5. Mesmer Analytic, a biotechnology firm, floated an initial public offering of

Question

5. Mesmer Analytic, a biotechnology firm, floated an initial public offering of 2,000,000 shares at a price of $5.00 per share. The firm's owner/managers held 60 percent of the company's $1.00 par value authorized and issued stock following the public offering. One month after the IPO, the firm's board of directors declared a one-time dividend of $0.50 per share payable to all stockholders, meaning that the owner/managers would receive an immediate dividend, in part out of the pockets of the new public stockholders. What was the book value per share of the firm before and after the special dividend was paid? (Points : 1) $2.60; $2.10 $2.60; $2.60 $2.60; $2.30 $1.60; $1.10 $1.60; $1.00 6. Which of the following statements is correct? (Points : 1) If the returns on a stock could vary widely, and its standard deviation is large, then the stock will necessarily have a large beta coefficient. A stock that is more highly positively correlated with "The Market" than most stocks would not necessarily have a beta coefficient that is greater than 1.0. A stock's standard deviation of returns is a measure of the stock's "stand-alone" risk, while its coefficient of variation measures its risk if the stock is held in a portfolio. A portfolio that contained 100 low-beta stocks would be riskier than a portfolio containing 100 high-beta stocks. Negative betas cannot exist; if you calculate one, you made an error. 7. Stock A has a beta of 1.5 and Stock B has a beta of 0.5. Which of the following statements must be true about these securities? (Assume the market is in equilibrium.) (Points : 1) When held in isolation, Stock A has greater risk than Stock B. Stock B would be a more desirable addition to a portfolio than Stock A. Stock A would be a more desirable addition to a portfolio than Stock B. The expected return on Stock A will be greater than that on Stock B. The expected return on Stock B will be greater than that on Stock A.

Explanation / Answer

5 .1) $2.60; $2.10 6.A stock that is more highly positively correlated with "The Market" than most stocks would not necessarily have a beta coefficient that is greater than 1.0. 7.Stock A would be a more desirable addition to a portfolio than Stock B.

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