1.\tQuestion :\tInvestors will make an investment if:\tStudent Answer:\tthe historical rate of return exceeds the expected rate of return.\tthe required rate of return exceeds the expected rate of return.\tthe expected rate of return exceeds the actual rate of return.\tthe expected rate of return exceeds the required rate of return.\tInstructor Explanation:\tThe answer can be found in Section 9.1: The Building Blocks of the Required Return.\tPoints Received:\t1 of 1 \tComments:\t2.\tQuestion :\tWhich of the following is true regarding market risk?\tStudent Answer:\tIt is measured by beta.\tIt is also called nondiversifiable risk.\tIt is also called systematic risk.\tall of the above\tInstructor Explanation:\tThe answer can be found in Section 9.2: Risk and Return.\tPoints Received:\t1 of 1 \tComments:\t3.\tQuestion :\tWhich of the following statements regarding the cost of equity is true?\tStudent Answer:\tIt can be estimated in three different ways.\tIt is always estimated using the present value of future dividends approach.\tIt is estimated by solving for the discount rate for a perpetuity.\tIt is generally lower than the cost of debt because equity holders are paid after taxes are paid.\tInstructor Explanation:\tThe answer can be found in Section 10.2: The Weighted Cost of Capital.\tPoints Received:\t1 of 1 \tComments:\t4.\tQuestion :\tThe weighted average cost of capital is:\tStudent Answer:\tthe average return for the company’s stock over the past several years.\tthe average cost, including commissions, for raising capital for the firm.\tan average required return for each of the sources of capital used by the firm to finance its projects, weighted by the amount contributed by each source.\tinterest payments and dividends, divided by the price of bonds and stock, respectively.\tInstructor Explanation:\tThe answer can be found in Section 10.2: The Weighted Cost of Capital.\tPoints Received:\t1 of 1 \tComments:\t5.\tQuestion :\tIn the Capital Asset Pricing Model, the risk-free rate:\tStudent Answer:\tlinks the CAPM to current market conditions.\tis the historic long-term average rate of government bonds.\tcan be approximated by using yields on high-rated corporate bonds.\tis always the current yield on 30-year US government Treasury bonds.\tInstructor Explanation:\tThe answer can be found in Section 9.2: Risk and Return.\tPoints Received:\t1 of 1 \tComments:\t6.\tQuestion :\tIn the Capital Asset Pricing Model, the market risk premium can be thought of as:\tStudent Answer:\tthe return investors expect to earn for each unit of risk as measured by beta.\tthe risk premium that any asset must pay above the risk-free rate.\tthe expected return on the market portfolio (or a broad market index).\ta measure of risk of an asset.\tInstructor Explanation:\tThe answer can be found in Section 9.2: Risk and Return.\tPoints Received:\t1 of 1 \tComments:\t7.\tQuestion :\tA bond pays semiannual coupon payments of $30 each. It matures in 20 years and is selling for $1,200. What is the firm’s cost of debt if the bond’s par value is $1,000? (Don’t forget this is a semiannual coupon.)\tStudent Answer:\t2.23%\t4.48%\t1.80%\t3.60%\tInstructor Explanation:\tThe answer can be found in Section 10.2: The Weighted Average Cost of Capital.\tPoints Received:\t1 of 1 \tComments:\t8.\tQuestion :\tWhich of the following is beta is used for?\tStudent Answer:\testimating a regression line\testimating a firm’s total risk to be used in the WACC\testimating a firm’s market risk and used with the CAPM\testimating the amount of leverage used by the firm\tInstructor Explanation:\tThe answer can be found in Section 10.2: The Weighted Cost of Capital.\tPoints Received:\t1 of 1 \tComments:\t9.\tQuestion :\tThe discount rate used in project evaluation should:\tStudent Answer:\tbe based on the firm’s overall risk.\tbe based on each project’s risk.\tbe estimated using the WACC for all projects.\tAll of the above are correct.\tInstructor Explanation:\tThe answer can be found in Section 10.3: Estimating the Discount Rate for Individual Projects.\tPoints Received:\t1 of 1 \tComments:\t10.\tQuestion :\tThe financing mix reflected in the WACC should:\tStudent Answer:\treflect the desired mix and not necessarily the mix being used to finance a specific project.\tvary from project to project, depending on how they are financed.\talways reflect the firm’s current capital structure.\tNone of these answers is correct.\tInstructor Explanation:\tThe answer can be found in Section 10.2: The Weighted Cost of Capital.<\/p>\n","protected":false},"excerpt":{"rendered":"
1. Question : Investors will make an investment if: Student Answer: the historical rate of return exceeds the expected rate of return. the required rate of return exceeds the expected rate of return. the expected rate of return exceeds the Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-204815","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/204815","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=204815"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/204815\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=204815"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=204815"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=204815"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}