Question 41

All else equal, an increase in the beta of the stock will lower the stock price.

True

False

Question 42

You are considering purchasing a house that costs $225,000. Assuming you have $40,000 available for a down payment and plan to borrow the remainder over 30 years at 8.75% interest, your monthly mortgage payment will be _____.

$1455.40

None of the other answers are correct

$1770.08

$444.13

$185.23

Question 43

Consider the following four mutually exclusive projects. Which project may present a crossover (multiple IRR) problem when using IRR? (No calculations are necessary...this is a concept question) This is a multiple answer format question which means you should check all that apply...there may be more than one correct response

	Project A	Project B	Project C	Project D
CF0	-25,000	-25,000	-50,000	-50,000
CF1	1,000	14,000	5,000	24,000
CF2	2,000	14,000	10,000	24,000
CF3	3,000	-6,000	30,000	24,000
CF4	40,000	6,000	40,000	-12,000
T	3 years	2.75 years	2.75 years	2.5 years
k	10%	12%	12%	14%

Project D

Project A

Project C

Project B

Question 44

Last year you bought a 10-year zero coupon bond when the market rate of interest was 8%. Today (with 9 years remaining until maturity) market rates of interest are 8.5% and you sell the bond. Based on this, how much did you make (or lose) during your year holding the bond.

Took a loss of $73.41

None of the other answers are correct

Made a profit of $65.34

Made a profit of $26.68

Took a loss of $38.22

Question 45

I want to invest $2000 today into a savings account earning 8.5% compounded quarterly. After 10 years, I will have $52,561.71.

True

False

Question 46

The reason we need three methods for estimating the cost of common stock financing is ____. This is a multiple answer format question. Check all that apply.

The SML tends to overestimate the cost of common stock financing while the bond yield plus risk premium approach tends to underestimate the cost of common stock financing

Each of the methods has individual flaws and may not be reliable in all situations

The SML tends to underestimate the cost of common stock financing while the bond yield plus risk premium approach tends to overrestimate the cost of common stock financing

Question 47

Consider two stocks. Stock A has an expected return of 13.6% and stock B has an expected return of 6.2%. The stocks have a correlation of -0.03. You plan to invest $7340 into stock A and $4528 into stock B. What is the expected return of your two stock portfolio? (round weights to 3 decimal places and final answer to 2 decimal places). Write your answer out without the % sign, but not in decimal so that 9.22% would be 9.22 (not 0.0922 or 9.22%)

Question 48

When using the Payback Period as a capital budgeting rule, we should increase the critical acceptance level (T) when evaluating projects with above average risk.

True

False

Question 49

Which stock would we expect to have the lowest beta

Coca-Cola

Caterpillar

Bank of America

Ford

Deere

Question 50

The US equity markets are the largest equity markets in the world, accounting for over 75% of global equity market values.

True

False