QUESTION 24

......................... Standard Deviation ........ Beta

Security X .............. 0.35 ........................ 1.45

Security Y .............. 0.28 ........................ 1.06

Security Z .............. 0.44 ......................... 1.22

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Which security has the greatest systematic risk?

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	A.	Z because it has the largest standard deviation.
	B.	Z because it has a high beta and the largest standard deviation.
	C.	X because it has the largest beta coefficient..
	D.	Y because it has the greatest diversifiable risk.
	E.	It is not possible to tell given the information above.

QUESTION 32

Currently the risk-free rate is 6% and the expected return on the market portfolio is 11%, the expected return for 3 stocks as priced in the market are listed below with their estimate of beta.

Stock ... Expected Return ..... Beta

X .................... 14% .............. 1.5

Y .................... 12% .............. 2.0

Z .................... 10% .............. 0.8

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Which of these stocks is overpriced?

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	A.	X
	B.	Y
	C.	Z
	D.	None, they are all fairly priced.
	E.	None, they are all underpriced.

3 points

QUESTION 33

Jacks Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $30 a share. The U.S. Treasury bill is yielding 4% and the market risk premium is 8%. Jacks tax rate is 35%. What is Jacks weighted average cost of capital?

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	A.	7.10 %
	B.	9.89 %
	C.	10.38 %
	D.	11.37 %
	E.	11.87 %