Stock ABC has a required return of 9 percent. Stock XYZ has a required return of 11 percent. Assume a risk-free rate of 2.75 percent. As a result, Stock ABC is riskier than Stock XYZ.

True

False

PQR, Inc. recently adjusted the probabilities for its expected cash flows due to a change in market conditions. It revised the probability of favorable conditions from 42% to 18% and the probability of poor earnings from 5% to 20%. It is likely that this revision would raise expected returns.

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True

False

Question text

If the required return from an asset is 14%, and the asset has a 65% probability of yielding a 20% return and a 35% probability of earning an 8% return, you should purchase the asset since the expected return of 15.8% exceeds the required return.

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True

False

If the probability of a 10% return is 60% and the probability of a 5% loss is 40%, then the expected return is 4.0 percent.

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True

False

Answer rating: 100% (QA)

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