MGT 6201 FINANCE – GENERAL |
COMPREHENSIVE STUDY GUIDE, PRACTICE
QUESTIONS, CORRECT ANSWERS AND
EXAM PREP
| GRADED A+ | GUARANTEED SUCCESS
Updated 2026 Questions and Answers
100% Verified Exam Prep
, How is a 'basis point' defined in terms of percentage? One basis point equals 0.01% (or 100 basis points equal 1%).
In bond ratings, any rating below _____ is considered a junk Triple B (BBB/Baa)
bond or speculative grade.
Term: Cost of Equity Capital Definition: The rate of return shareholders expect the firm to earn on its equity capital.
According to the Capital Asset Pricing Model (CAPM), what is R(e) = R(f) + [β × (R(m) - R(f))]
the formula for the cost of equity (R(e))?
In the CAPM formula, what does the term (R(m) - R(f)) The Market Risk Premium.
represent?
Concept: Beta (β) Definition: A measure of a stock's sensitivity to macroeconomic or market risk.
What is the defined Beta (β) of the S&P 500 index? 1.0
What is the defined Beta (β) of a risk-free Treasury Bond? 0
How does a Beta of 0.5 affect a stock's expected movement The stock is expected to increase by 5%.
relative to a 10% market increase?
Why can investors eliminate firm-specific risk but not market Market risk is driven by unavoidable macroeconomic factors like recessions or interest
risk through diversification? rate changes.
Which specific type of risk is eliminated when a stock is held in Firm-specific (or idiosyncratic) risk.
a large, well-diversified portfolio?
If a company's cash flows are not impacted by the business Less than 1.0
cycle, its Beta is likely to be _____.
Formula: Weighted Average Cost of Capital (WACC) WACC = [(D/V) × R(d) × (1 - T)] + [(E/V) × R(e)]
What is the 'Market Cap' (Market Value of Equity) of a firm? The share price multiplied by the number of shares outstanding.
COMPREHENSIVE STUDY GUIDE, PRACTICE
QUESTIONS, CORRECT ANSWERS AND
EXAM PREP
| GRADED A+ | GUARANTEED SUCCESS
Updated 2026 Questions and Answers
100% Verified Exam Prep
, How is a 'basis point' defined in terms of percentage? One basis point equals 0.01% (or 100 basis points equal 1%).
In bond ratings, any rating below _____ is considered a junk Triple B (BBB/Baa)
bond or speculative grade.
Term: Cost of Equity Capital Definition: The rate of return shareholders expect the firm to earn on its equity capital.
According to the Capital Asset Pricing Model (CAPM), what is R(e) = R(f) + [β × (R(m) - R(f))]
the formula for the cost of equity (R(e))?
In the CAPM formula, what does the term (R(m) - R(f)) The Market Risk Premium.
represent?
Concept: Beta (β) Definition: A measure of a stock's sensitivity to macroeconomic or market risk.
What is the defined Beta (β) of the S&P 500 index? 1.0
What is the defined Beta (β) of a risk-free Treasury Bond? 0
How does a Beta of 0.5 affect a stock's expected movement The stock is expected to increase by 5%.
relative to a 10% market increase?
Why can investors eliminate firm-specific risk but not market Market risk is driven by unavoidable macroeconomic factors like recessions or interest
risk through diversification? rate changes.
Which specific type of risk is eliminated when a stock is held in Firm-specific (or idiosyncratic) risk.
a large, well-diversified portfolio?
If a company's cash flows are not impacted by the business Less than 1.0
cycle, its Beta is likely to be _____.
Formula: Weighted Average Cost of Capital (WACC) WACC = [(D/V) × R(d) × (1 - T)] + [(E/V) × R(e)]
What is the 'Market Cap' (Market Value of Equity) of a firm? The share price multiplied by the number of shares outstanding.
