FINA 3000 Pope UGA Test 2 questions and solutions
T/F: A stock with a beta of 1 has the same relevant risk as the market portfolio. - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: Market risk and systematic risk describe the same portion of volatility. - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: The greater the correlation between a stock's returns and returns on the market portfolio, the greater the
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
beta. - answersTrue
ji ji ji
T/F: If a stock's actual return plots above the security market line, we say the stock is overvalued. -
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
answersFalse; it's undervalued
ji ji ji
T/F: A large weakness of the payback method is that it ignores the time value of money. - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: The largest weakness of the CAPM model is that finding a true risk-free rate is impossible. -
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
answersFalse
ji
what is a major weakness of the finite stock pricing model? - answersthat you assume the future selling price
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: the coefficient of variation is the risk taken per unit of return - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: as assets are added to a portfolio, the importance of covariance decreases - answersfalse
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: for contingent projects, all projects are rejected if ANY of the other projects have a negative NPV -
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
answersFalse
ji
only reject all projects if the total NPV is negative
ji ji ji ji ji ji ji ji ji
T/F: the slope of the security market line is beta - answersFalse
ji ji ji ji ji ji ji ji ji ji ji
the x axis is beta and the slope is the required return
ji ji ji ji ji ji ji ji ji ji ji
T/F: a large weakness of IRR is that we assume cash-flows are re-invested at the cost of capital -
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
answersFalse. it assumes that cash flows are reinvested at the IRR % and DOES NOT take into account cost
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
of capital
ji ji
T/F: MIRR finds the rate of return when cash-flows are re-invested at the cost of capital - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: if a stock has a beta greater than 1, it has greater systematic risk than the avg investment - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: the market portfolio risk is larger for a small company stock than a large company stock - answersFalse
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: A stock with a beta of 1 has the same relevant risk as the market portfolio. - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: Market risk and systematic risk describe the same portion of volatility. - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: The greater the correlation between a stock's returns and returns on the market portfolio, the greater the
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
beta. - answersTrue
ji ji ji
T/F: If a stock's actual return plots above the security market line, we say the stock is overvalued. -
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
answersFalse; it's undervalued
ji ji ji
T/F: A large weakness of the payback method is that it ignores the time value of money. - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: The largest weakness of the CAPM model is that finding a true risk-free rate is impossible. -
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
answersFalse
ji
what is a major weakness of the finite stock pricing model? - answersthat you assume the future selling price
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: the coefficient of variation is the risk taken per unit of return - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: as assets are added to a portfolio, the importance of covariance decreases - answersfalse
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: for contingent projects, all projects are rejected if ANY of the other projects have a negative NPV -
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
answersFalse
ji
only reject all projects if the total NPV is negative
ji ji ji ji ji ji ji ji ji
T/F: the slope of the security market line is beta - answersFalse
ji ji ji ji ji ji ji ji ji ji ji
the x axis is beta and the slope is the required return
ji ji ji ji ji ji ji ji ji ji ji
T/F: a large weakness of IRR is that we assume cash-flows are re-invested at the cost of capital -
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
answersFalse. it assumes that cash flows are reinvested at the IRR % and DOES NOT take into account cost
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
of capital
ji ji
T/F: MIRR finds the rate of return when cash-flows are re-invested at the cost of capital - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: if a stock has a beta greater than 1, it has greater systematic risk than the avg investment - answersTrue
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
T/F: the market portfolio risk is larger for a small company stock than a large company stock - answersFalse
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
