PLEASE ANSWER ALL QUESTIONS, WILL GIVE THUMBS UP

1) Which of the following statements is correct?

a. If a project has an IRR greater than the required return, the NPV of the project should be positive.

b. Major strengths of the traditional payback method include the fact that it accounts for time-value-of money and for cash flows subsequent to the payback period.

c. The typical payback for the cost of a students education at WWU is at least 20 years.

d. Of all the capital budgeting methods, the profitability index method is used the most by executives.

e. None of the above statements is correct.

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2) The data in regards to two stocks is shown below:

-----------------------------------------------------------------Returns for---------

State of Economy - Probability --------------- Stock A --- Stock B -----

Boom ------------------- 30% -------------------------100% -------20%

Normal ------------------40% --------------------------15% ---------15%

Recession --------------30%-------------------------( -70%)------- 10%

Which of the following statements regarding Stocks A and B is true? [Note: you do not need to calculate standard deviation; you merely need to look at the figures to see which stock has a higher deviation.]

a. Stock A has a higher expected return than Stock B, but Stock A is more risky because it has a lower standard deviation.

b. Stock A has the same expected return as Stock B, but Stock A is more risky because it has a higher standard deviation.

c. Stock B has the same expected return as Stock A, but Stock B is more risky because it has a higher standard deviation.

d. Stock B has a higher expected return than Stock A, but Stock B is less risky because it has a lower standard deviation.

e. Both stocks have the same expected returns and the same standard deviations.

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3) Which of the following is NOT true regarding beta (the beta coefficient)?

a. It is a measure of systematic risk, which cannot be diversified away.

b. A stock with a beta of .5 generally is considered to be less risky than a stock with beta of 2.

c. A stock with a beta of 3 historically moves three times as far as the overall market.

d. A beta of one indicates an investment is totally risk free.

e. A negative beta means that a stock price has reacted in an opposite direction to the overall market.

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4) Assume the following information is available: Return on ABC, 30-year, corporate bonds is 8%. The bonds are regularly traded and very liquid. The current and expected inflation rate is 3% Return on U.S. Treasury Bill is 4% Return on 30-year U.S. Treasury Bond is 6% Which of the following statements is correct?

a. The real risk-free rate is approximately 2%

b. The return on the U.S. Treasury bond includes an interest-rate risk premium of 4%

c. The return on the corporate bond includes a default risk premium of 3%

d. The return on the corporate bond includes a liquidity risk premium of 2%

e. The return on the corporate bond includes a default risk premium of 2%

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5) Fort his question, let's assume that Treasury Bills currently yield 4.5% and the market risk premium is 4% (i.e. expected market return is 8.5%). If the common stock of Hughley Corp. has a beta of 1.42, which of the following statements is true?

a. Hughleys cost of equity financing (from common stock) is 4.8%

b. Hughleys after-tax cost of equity financing (from common stock) is 6.6%.

c. Hughleys stock is not as volatile as the overall market.

d. Hughleys cost of equity financing (from common stock) is 10.2%

e. None of the above statements is true