1). The expected returns for Stocks A, B, C, D, and E are 7%, 10%, 12%, 25%, and 18% respectively. The corresponding standard deviations for these stocks are 12%, 18%, 15%, 23%, and 15% respectively. Based on their coefficients of variation, which of the securities is least risky for an investor? Assume all investors are risk-averse and the investments will be held in isolation.

	a.	E
	b.	B
	c.	D
	d.	C
	e.	A

2).

Seattle Corporation identifies an investment opportunity that will yield end of year cash flows of $30,000 per year in Years 1 through 2, $35,000 per year in Years 3 through 4, and $40,000 in Year 5. This investment will cost the firm $100,000 today, and the firm's required rate of return is 10 percent. What is the NPV for this investment? (Round off the answer to two decimal places.)

	a.	$35,768.45
	b.	$23,653.26
	c.	$44,226.00
	d.	$27,104.46
	e.	$40,235.34

3).

Ziker Golf Company evaluated a project as a risky project. Ziker generally evaluates projects that are riskier than average by adjusting its required rate of return by 4 percent. If Ziker expects 12% return on average risk projects, then it should expect a return of _____ for a risky project.

	a.	16%
	b.	12%
	c.	10%
	d.	8%
	e.	48%

4).

The beta coefficient of Zed Corporation is equal to 0.7 and the required rate of return on the stock equals 12 percent. If the expected return on the market is 12.5 percent, what is the risk-free rate of return? (Round off the answer to two decimal places.)

	a.	11.56%
	b.	12.25%
	c.	8.89%
	d.	10.83%
	e.	9.52%

5).

Two mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project L are $15,000, while the undiscounted cash flows from Project S total $13,000. Their NPV profiles cross at a discount rate of 10 percent. Which of the following statements best describes this situation?

	a.	As the NPV profiles cross at a discount rate of 10 percent resulting in conflict, none of these two projects should be selected.
	b.	The NPV and IRR methods will select the same project if the cost of capital is less than 10 percent; for example, 8 percent.
	c.	The NPV and IRR methods will select the same project if the required rate of return is greater than 10 percent; for example, 18 percent.
	d.	Project L should be selected at any required rate of return, because it has a higher IRR.
	e.	Project S should be selected at any required rate of return, because it has a higher IRR.

6).

A portfolio would offer maximum diversification benefits when _____.

	a.	the constituent stocks have a coefficient of variation of 1
	b.	the constituent stocks have a coefficient of correlation of +1
	c.	the constituent stocks have a coefficient of correlation of 1
	d.	the constituent stocks have a coefficient of variation of 0
	e.	the constituent stocks have a coefficient of correlation of 0

7).

Darren has the option of investing in either Stock A or Stock B. The probability of the return of Stock A being 25% is 0.45, 14% is 0.25, and 4% is 0.30. The probability of the return of Stock B being 30% is 0.30, 9% is 0.25, and 2% is 0.45. Given the probability distributions for the two investments, what is the expected rate of return and standard deviation for Stock A?

	a.	16.80%; 11.45%
	b.	13.65%; 12.85%
	c.	17.82%; 11.95%
	d.	14.75%; 13.75%
	e.	15.95%; 9.03%

8).

Los Angeles Lumber Company (LALC) is considering a project with a cost of $1,000 at Year 0 and inflows of $300 at the end of Years 1-5. LALC's cost of capital is 10 percent. What is the project's modified IRR (MIRR)? (Round off the answer to two decimal places.)

	a.	12.87 percent
	b.	10.04 percent
	c.	18.34 percent
	d.	15.23 percent
	e.	20.72 percent

9).

A stock has a beta coefficient, , equal to 1.20.The risk premium associated with the market is 9 percent, and the risk-free rate is 5 percent. Application of the capital asset pricing model indicates that the stock's appropriate return should be _____.

	a.	5.2%
	b.	17.2%
	c.	9.8%
	d.	12.5%
	e.	15.8%

10).

The capital budgeting director of Sparrow Corporation is evaluating a project that costs $200,000, is expected to last for 10 years and produces after-tax cash flows, including depreciation, of $44,503 per year. If the firm's required rate of return is 14 percent and its tax rate is 40 percent, what is the project's IRR?

	a.	14 percent
	b.	5 percent
	c.	8 percent
	d.	18 percent
	e.	12 percent