QUESTION 7 Which of the following statements about portfolio is true? ______ The

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QUESTION 7

Which of the following statements about portfolio is true? ______

The expected return of a portfolio is the weighted average of the expected returns of all individual stocks in the portfolio.

The standard deviation of a portfolio is the weighted average of the standard deviations of all individual stocks in the portfolio.

Portfolio beta is NOT the weighted average of the beta values of all individual stocks in the portfolio.

Both A and C are correct.

QUESTION 8

Any change in risk-free rate is likely to affect the required rate of return on a stock, which implies that a change in risk-free rate will likely have an impact on the stock's price._____

True

False

QUESTION 9

If we assume a perpetuity pays $50 per year forever. What would the perpetuity be worth if the required rate of return is 10%? ______

$5

$50

$500

$1,000

QUESTION 11

For a supernormal dividend growth stock, the capital gain yield of the stock is NOT equal to the dividend growth rate g during supernormal growth period.

True

False

QUESTION 14

If a stock's expected rate of return is 12% and the required rate of return is 10%, the stock is believed to be ______

Undervalued.

Overvalued.

Fairly-valued

QUESTION 15

A 10-year corporate bond has an annual coupon payment of 9%. The bond is currently selling at par ($1,000). Which of the following statement is NOT correct?

The bond's yield to maturity is 9%.

The bond's current yield is 9%.

If the bond's yield to maturity remains constant, the bond's price will remain at par.

The bond's capital gain yield is 9%.

QUESTION 16

At maturity, the value of either premium bond or discount bond equals to its par value. ______

True.

False.

QUESTION 17

Which of the following statements is not correct?_____

Preferred dividends paid are tax deductible.

Interest expense is NOT tax deductible.

Common dividends paid are tax deductible.

None of the statements above is correct.

Explanation / Answer

q.7 The expected return of a portfolio is the weighted average of the expected returns of all individual stocks in the portfolio.

q.8 True. As per CAPM= Ke=Rf+beta*(Rm-Rf)

q.9 50/0.1=500

14.Answer

Overvalued. Since expected return is more than required rate of return

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