QUESTION 11

1. Generally, the change in the risk aversion level of investors is likely to affect the required rate of return on a stock. The increase in in the risk aversion level will likely have a positive impact on the stock's price.

True

False

5 points

QUESTION 12

1. How long will it take to double the investments if we assume the annual investment return is 5.0%?

		8.8 years
		11.9 years
		11.6 years
		14.2 years

5 points

QUESTION 13

1. Yields on longer term bonds usually are greater than on shorter term bonds, so the maturity risk premium is more affected by interest rate risk than by reinvestment rate risk.

True

False

5 points

QUESTION 14

1. If a stock's required rate of return is 12% and the expected rate of return is 13%, the stock is believed to be ______

		Fairly-valued
		Undervalued.
		Overvalued.
		None of the above is correct

5 points

QUESTION 15

1. A 10-year corporate bond has an annual coupon payment of 5.3%. The bond is currently selling at par ($1,000). Which of the following statement is correct?

		The bond's yield to maturity is 5.3%.
		The bond's current yield is 0%.
		The bond's capital gain yield is 5.3%.
		All of the above statements are incorrect.

5 points

QUESTION 16

1. As more stocks are added into a portfolio, each new stock has a greater risk-reducing impact on the portfolio.

		True.
		False.

5 points

QUESTION 17

1. Which of the following statements is correct?

		Special common dividends paid are tax deductible.
		Interest expense is tax deductible.
		Regular common dividends paid are tax deductible.
		Stock dividends and stock splits should pay tax.

5 points

QUESTION 18

1. If investors become less averse to risk, the slope of the Security Market Line (SML) will decrease.

		True.
		False.

5 points

QUESTION 19

1. Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

		The periodic rate of interest is 6% and the effective rate is also 6%.
		The periodic rate of interest is 1.5% and the effective rate is greater than 6%.
		The periodic rate of interest is 3% and the effective rate is less than 6%.
		The periodic rate of interest is 1.5% and the effective rate is less than 6%.

5 points

QUESTION 20

1. Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT.

		All common stocks, regardless of class, must have the same voting rights.
		All firms have multiple classes of common stock.
		All common stock, regardless of class, must pay the same dividend.
		Some class or classes of common stock are entitled to more votes per share than other classes.