QUESTION 1

1. What do we usually use for risk-free rate in equity valuation?

   		3-month Treasury bill yield
   		2-year Treasury note yield
   		10-year Treasury bond yield
   		Prime rate

QUESTION 2

1. You want to estimate the equity beta of Chrysler, a private auto maker. You estimate the asset beta of the auto industry to be 1.34. Chrysler has a D/E ratio of 1.5 and marginal tax rate of 21%. What is the equity beta of Chrysler?

   		1.34
   		2.84
   		2.50
   		2.93
   		4.12

QUESTION 3

1. What should we use for expected market return?

   		10-year arithmetic average return of S&P 500 index.
   		10-year geometric average return of S&P 500 index.
   		80-year arithmetic average return of S&P 500 index.
   		80-year geometric average return of S&P 500 index.

QUESTION 4

1. Suppose Apple paid $3 of dividend last year and expects the dividend to grow at 6% per year in the foreseeable future. If Apples stock price today is $280, what is Apples cost of equity?

   		8.53%
   		7.14%
   		7.07%
   		6.26%
   		5.43%

QUESTION 5

1. Which of the following industry has the highest beta?

   		Gold mining
   		Petroleum refinery
   		Yachts
   		Health care