Stock: A, B, C, D

Expected return: 3%,9%,7%,9%

Standard deviation: 9%,3%,5%,9%

For a rational risk-averse investor, we can definitely say which of the following?

A) D is preferred to A... B) C is preferred to B... C) A is preferred to B ... D) D is preferred to C

Which of the following statements is TRUE regarding RISK?

A) Ceteris paribus, a higher standard deviation reflects less risk.

B) If you hold stock in a snow sled company and want to reduce risk through diversification, you should add shares of stock from a snow boots company rather than from a beach umbrella company.

C) Systematic risk can be reduced through diversification

D) Combining stocks with a correlation coefficient of -0.7 would result in greater risk reduction than combining stocks with a correlation coefficient of -0.2.

Which of the following is TRUE regarding STOCKS?

A) You should sell equities if you expect a bull market in stocks

B) As an investor, you would buy stock at the "BID" price and sell at the "ASK" price.

C) The limited liability feature of corporate stocks increases the risk for investors.

D) Claims of creditors against a corporation come before those of common stockholders.

You buy a stock from which you expect to receive an annual dividend of $2.50 for each of the three years that you plan on holding it. At the end of year three, you expect o be able to sell the stock for $185. What is the most that you should be willing to pay today for a share of this company if you want to earn a return of atleast 9%?

A) $68.75 B) $149.18 C) $192. 50 D) $199.33

Atlantic Corporation just paid an annual dividend of $1.50 per share on its common stock. Dividends are expected to grow at an annual rate of 4% hereafter. If investors require a rate of return of 8% on Atlantic stock, what is the most they should be willing to pay for a share of this stock today?

A) $18.75 B) $37.50 C) $39.00 D) $49.31