The return on _________________ is the best measure of the risk-free rate of int

Question

The return on _________________ is the best measure of the risk-free rate of interest.

Question 4 options:

1) stocks

2) options

3) U.S Treasury Bills/Bonds

4) real estate Save

Question 5: Other things held constant, an increase in a bond’s expected return (yield to maturity) will cause:

Question 5 options:

1) the price of the bond to decrease.

2) the price of the bond to remain unchanged.

3) the price of the bond to increase.

4) the price of the bond to increase or decrease based on the bond’s issue date.

Question 6 Consistent with the Capital Asset Pricing Model (CAPM), the best measure of market risk is:

Question 6 options: 1) standard deviation (total risk).

2) beta (systematic risk).

3) variance (total risk).

4) coefficient of variation (risk per unit of return).

Question 7 Which of the following statements concerning the constant growth model is TRUE:

Question 7 options:

1) The stock price equals the value of the next dividend.

2) Dividends are assumed to grow at a constant rate.

3) The model does not consider risk.

4) There is no adjustment for dividend growth.

Explanation / Answer

Question 4

The return on _________________ is the best measure of the risk-free rate of interest.

Correct option is > 3) U.S Treasury Bills/Bonds

Treasury bills are close representation for risk free rates.

.

Question 5:

Other things held constant, an increase in a bond’s expected return (yield to maturity) will cause:

Correct option is > 1) the price of the bond to decrease.

Bond yields are inversely related with price of bonds.

.

Question 6

Consistent with the Capital Asset Pricing Model (CAPM), the best measure of market risk is:

Correct option is > 2) beta (systematic risk)

Beta measures the risk-free rate

.

Question 7

Which of the following statements concerning the constant growth model is TRUE:

Correct option is > 2) Dividends are assumed to grow at a constant rate.

The growth rate of dividend is constant is very theoretical which is not in real life scenario.

Note: I am sure about question number 4,5&6. Bit unsure about my answer for question number 7.

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