MBA 702 - Exam 2 Questions and Correct
Answers
Question 1
Which one of the following is most directly affected by the level systematic risk in a
security?
a. Variance of returns
b. Sd of returns
c. Expected RoR
d. Risk Free rate
e. Market Risk Premium
Correct Answer
Variance of the returns
Question 2
Suzie owns five different bonds and twelve different stocks. Which one of the
following terms most applies to her investments?
a. portfolio
b. index
c. collection
d. grouping
e. risk free
Correct Answer
Portfolio
Question 3
A projects average NI/Average Book Value is referred to as the projects' average:
a. NPV
b. IRR
c. Accounting Return
d. Profitability Index
e. Payback Period
Correct Answer
accounting return
Page 1 of 25
,Question 4
The expected return on a stock given various stages of the economy is equal to the:
a. highest expected return to give any economic state
b. arithmetic avg of the returns for each economic state
c. summation of the indiv. expected RoR
d. weighted avg of the returns for each economic state
e. return of the economic state with highest probability
Correct Answer
weighted average of the returns for each economic state
Question 5
At a minimum, which of the following would you need to know to estimate the
amount of additional reward you will receive for purchasing a risky asset instead of a
risk-free asset?
I. asset's standard deviation
II. asset's beta
III. risk-free rate of return
IV. market risk premium
Correct Answer
II and IV only
Question 6
Which one of the following represents the capital gains yield as used in the dividend
growth model?
a. D1
b. D1/Po
c. Po
d. g
e. g/Po
Correct Answer
g
Page 2 of 25
, Question 7
When the present value of the cash inflows exceeds the initial cost of a project, then
the project should be:
a. Accepted payback is < required time period
b. accepted - profitability index > 1
c. accepted - profitability index is (-) neg
d. rejected IRR is neg (-)
e. rejected - NPV is pos (+)
Correct Answer
accepted because the profitability index is great than 1
Question 8
The final decision on which of two mutually exclusive projects to accept ultimately
depends upon which one of the following?
a. Initial costs of project
b Timing of cash flows
c. Total cash inflows of each project
d. NPV
e. Length of project's life
Correct Answer
NPV
Question 9
NPV
a. best method of analyzing mutually exclusive projects
b. less useful that the IRR when comparing different size projects
c. easiest method for non-financial managers
d. cannot be applied when comparing mutually exclusive projects
e. similar to average accounting of return
Correct Answer
is the best method of analyzing mutually exclusive projects
Page 3 of 25
Answers
Question 1
Which one of the following is most directly affected by the level systematic risk in a
security?
a. Variance of returns
b. Sd of returns
c. Expected RoR
d. Risk Free rate
e. Market Risk Premium
Correct Answer
Variance of the returns
Question 2
Suzie owns five different bonds and twelve different stocks. Which one of the
following terms most applies to her investments?
a. portfolio
b. index
c. collection
d. grouping
e. risk free
Correct Answer
Portfolio
Question 3
A projects average NI/Average Book Value is referred to as the projects' average:
a. NPV
b. IRR
c. Accounting Return
d. Profitability Index
e. Payback Period
Correct Answer
accounting return
Page 1 of 25
,Question 4
The expected return on a stock given various stages of the economy is equal to the:
a. highest expected return to give any economic state
b. arithmetic avg of the returns for each economic state
c. summation of the indiv. expected RoR
d. weighted avg of the returns for each economic state
e. return of the economic state with highest probability
Correct Answer
weighted average of the returns for each economic state
Question 5
At a minimum, which of the following would you need to know to estimate the
amount of additional reward you will receive for purchasing a risky asset instead of a
risk-free asset?
I. asset's standard deviation
II. asset's beta
III. risk-free rate of return
IV. market risk premium
Correct Answer
II and IV only
Question 6
Which one of the following represents the capital gains yield as used in the dividend
growth model?
a. D1
b. D1/Po
c. Po
d. g
e. g/Po
Correct Answer
g
Page 2 of 25
, Question 7
When the present value of the cash inflows exceeds the initial cost of a project, then
the project should be:
a. Accepted payback is < required time period
b. accepted - profitability index > 1
c. accepted - profitability index is (-) neg
d. rejected IRR is neg (-)
e. rejected - NPV is pos (+)
Correct Answer
accepted because the profitability index is great than 1
Question 8
The final decision on which of two mutually exclusive projects to accept ultimately
depends upon which one of the following?
a. Initial costs of project
b Timing of cash flows
c. Total cash inflows of each project
d. NPV
e. Length of project's life
Correct Answer
NPV
Question 9
NPV
a. best method of analyzing mutually exclusive projects
b. less useful that the IRR when comparing different size projects
c. easiest method for non-financial managers
d. cannot be applied when comparing mutually exclusive projects
e. similar to average accounting of return
Correct Answer
is the best method of analyzing mutually exclusive projects
Page 3 of 25
