Question 26 Consider a portfolio made up of two risky assets and a risk-free ass

Question

Question 26

Consider a portfolio made up of two risky assets and a risk-free asset. You invest 30% in asset A with a beta of 1.25 and 40% in asset B with a beta of 2.05. What is the beta of the portfolio?

Select one:

a. 1.12

b. 0.96

c. 1.20

d. 0.94

e. 1.03

Question 27

If a firm produces a 4 percent return on assets and also a 12 percent return on equity, then the firm:

Select one:

a. is using its assets as efficiently as possible.

b. also has a current ratio of 10.

c. has no debt of any kind.

d. has an equity multiplier of 3.

e. has an equity multiplier of 2.

Question 28

The total long-term debt and equity of the firm is frequently called:

Select one:

a. Total capitalization.

b. Debt-equity reconciliation.

c. Total financing.

d. Debt-equity consolidation.

e. Total assets.

Question 29

You are considering a project that costs $3000 and has expected cash flows of $1100, $1210, and $1331.00 over the next three years. If the appropriate discount rate for the project's cash flows is 10%, what is the net present value of this project?

Select one:

a. $0.00

b. $0.71

c. $19.79

d. The NPV is negative

e. $64.10

Question 30

A firm earns net income of $250,000 in a given year and the firm's retained earnings increase $200,000 for that same year. The retention ratio is:

Select one:

a. 40%

b. 60%

c. 100%

d. 25%

e. 80%

Explanation / Answer

Answering the first question as per Chegg policy

Answer 26:

Share in Asset A = Sa = 30% = 0.30

Beta of Asset A = B1 = 1.25

Share in Asset B = Sb = 40% = 0.40

Beta of Asset B = B2 = 2.05

Share in Asset C = Sc =30% = 0.30

Beta of Asset A = B3 = 0

Beta of the portfolio = (Sa x B1) + (Sb x B2) + (Sb x B3)

= (0.30 x 1.25) + (0.40 x 2.05) + (0.30 x 0)

= 1.195

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