True or False Questions:

1. Free cash flow calculation is possible using only the data in the Cash Flow Statement.
2. If you are interested in a companys ability to meet its short-term obligations, you should calculate its equity multiplier.
3. Beta is an appropriate measure of risk when the investor holds an efficiently diversified (or well-diversified) portfolio.
4. Assume that Stock A has a standard deviation of 0.20 and Stock B has a standard deviation of 0.15. It is possible for Stock B to have a higher required rate of return than Stock A.
5. Even when the correlation between two stocks is +1.0, if the securities are combined in the correct proportions, the resulting 2-asset portfolio will have less risk than either security held alone.

Multiple Choice Questions:

6. Holding all else constant, a companys current ratio would decrease due to a decrease in:

1. Accounts Payable
2. Accounts Receivable
3. Common Equity
4. Net Fixed Assets
5. Notes Payable

7. Assume that CAPM holds. Which of the following statements is TRUE?

1. Beta indicates a stocks diversifiable risk
2. Two stocks with the same stand-alone risk must have the same betas
3. The slope of the security market line is given by the market risk premium
4. If the beta of a Stock doubles, then its required rate of return must also double
5. If the risk-free rate decreases, then the market risk premium must also decrease

8. For a stock that is in market equilibrium, dividends are expected to grow at a constant rate of 4% indefinitely. Which of the following statements about this stock is TRUE?

1. Its dividend yield is 4%
2. Its expected rate of return is 4%
3. Its required rate of return is less than 4%
4. Its price is expected to decrease in the future
5. Its price one year later is expected to be 4% above its current price