QUESTION 1
1. Premium Bond
A bond for which the current interest rate is below the coupon rate.
A bond for which the current interest rate is above the coupon rate.
The date when a bond was issued.
The rate of return earned on a bond held until maturity.
A bond for which the current interest rate is equal to the coupon rate.

QUESTION 2
1. Idiosyncratic Risk
All of the above.
The risk of a security that is associated with random events.
The risk that is specific to one particular investment.
The risk that can be eliminated by proper diversification.
None of the above.

QUESTION 3
1. Systematic Risk
None of these.
The risk of a security that is associated with random events.
This is also called diversifiable risk.
The risk that remains in a portfolio after diversification has eliminated all of the company-specific risk.
The risk of a fire in a factory is an example of this type of risk.

QUESTION 4
1. Which of the following is true:

The current prime rate is 3.25%.
A bond s yield is often referred to as its prime rate.
The rate that you pay on your credit card balance is the current prime rate plus the spread.
The prime rate is a fixed amount, but the spread changes over time.
The Prime Rate can be as low as 0.25% and as high as 20%.

QUESTION 5
1. Which of the following is NOT true:
The slope of the yield-curve reflects investor sentiment about the overall health of the economy.
The yield curve charts the annual interest rates paid on bonds of various maturities.
None of these.
Investors compare the yields of securities of various maturities to understand the prospects for future market growth and inflation.
Yields on long-term bonds are always higher than short-term bonds.

QUESTION 6
1. For a standard semi-annual bond, if the price increases from par, which of the following is NOT true:
The coupon amount increases.
The interest rate decreases.
None of these.
The present value of the bond s remaining cash flows increases.
The bond is called a premium bond.

QUESTION 7
1. Stock A's beta is 2.3 and the standard deviation of its return is 1.8%. Stock B's beta is 1.7 and the standard deviation of its return is 1.95%. Which of the following statements must be true, assuming the CAPM is correct.
Stock A has more total risk than Stock B.
Stock A is a more desirable addition to a portfolio than B.
The expected return of Stock A will be greater than that of B.
The expected return of Stock B is 3.31%.
Stock B is a more desirable addition to a portfolio than A.

QUESTION 8
1. A stock has a beta of 1.6, expected return of 8.5%, intrinsic value of $30, and is currently trading for $30. Which of the following is true?
The stock is overvalued.
The stock is fairly valued.
The stock is undervalued.
There is not enough information to make a decision.
The stock has no idiosyncratic risk.

QUESTION 9
1. Which of the following is NOT correct?
None of the above.
Both stocks and bonds make required payments to the owners.
Both stocks and bonds are types of contracts.
Stocks and bonds are both ways in which corporations pay out profits to stakeholders.
The fair price of stocks and bonds can both be determined by adding the present values of the expected future cash flows.

QUESTION 10
1. A treasury bond that matures in 10 years has a yield of 2.0%. A 10-year corporate bond has a yield of 9% and a default risk premium of 4.7%. What is the liquidity premium of the corporate bond?
4.3
6.7
2.3
15.7
None of these

QUESTION 11
1. You are considering buying a Kalunga Corp. bond with a $1000 face value, 11% semi-annual coupon that has 14 years left until maturity. The bond has a yield to maturity of 16%. What is the fair price of this bond?
None of these
$726.62
$723.72
$1,353.04
$607.81

QUESTION 12
1. Chrystie Corp bonds have a 6% annual coupon, 7 years left until maturity, and they are currently selling for $1250. What is Chrystie Corp's cost of debt?
2.00%
8.74%
None of these
2.12%
8.47%

QUESTION 13
1. If BRC Inc. issued a bond that is currently selling for $950 has 7 years left until maturity and currently as a 6.4% yield to maturity. What must the bond s coupon payment be?
None of these
$27.51
$54.92
$69.88
$290.30

QUESTION 14
1. A Treasury Bill currently has an expected return of 2.5% and a well-diversified stock portfolio is currently expected to return 10%. If you have the choice of the following securities which is a good investment?
Security Beta You believe the return will be

A Stock A 1.2 10%
B Stock B 1.6 13%
C Stock C 2.3 17%
c
b
They are all good investments.
a
None of them are good investments.

QUESTION 15
1. Suppose you invest $3000 in GW Pharmaceuticals, which has a beta of 2.1, and you invest another $7000 into Hexo Corp, which has a beta of 1.63. If that is your entire portfolio, what is the portfolio's beta?
1.87
1.77
3.73
None of these
0.89
QUESTION 16
1. CRON stock just paid a dividend of $0.80 and the dividend is expected to remain constant. The stock s required rate of return is 7%. The current risk-free rate is 4%. What is intrinsic value of the stock today?

QUESTION 17
1. Suppose that Aphria Corp. stock is expected to pay a dividend of $0.75 at the end of the year and that the dividend is expected to grow at a rate of 12%. The company's current beta is 1.9, the current risk-free rate is 2.5% and the market risk premium is 8%. What is the intrinsic value of this stock?
$4.24
$13.16
$6.25
$14.74
None of these

QUESTION 18
1. The Eldridge company is thinking about investing in a new project. The balance sheet reports that they currently have $34 million worth of long-term debt and $34 million worth of common equity. They also have 1.2 million shares of stock outstanding and the stock currently trades for $43 per share. They have no preferred stock. If they have a cost of debt of 4%, a cost of equity of 12%, and the firm's tax rate is 23% what is the firm's WACC?
6.11%
7.51%
None of these
6.72%
6.99%

QUESTION 19
1. Ludlow Corp is thinking about expanding and wants to calculate their WACC. Assume that their capital structure consists of 23% common stock, 25% preferred stock, and 52% debt. Further, analysts predict that their future cost of debt will be 6% and their cost of equity is 14%. We also know that the current price of preferred stock is $26 and that preferred stock pays a $2.00 dividend. The firm's tax rate is 35%. What is this firm's WACC?
8.26%
9.23%
8.53%
None of these
7.17%
QUESTION 20
1. Essex Company has a beta of 0.92. If the current risk-free interest rate is 3.5% and the average return to the market is 9%, what is their cost of equity?
12.50%
11.78%
8.56%
8.28%
None of these

QUESTION 1 1. Premium Bond A bond for which the current interest...