15) True or False: The standard deviation and variance are \"absolute\" measures
ID: 2765744 • Letter: 1
Question
15) True or False: The standard deviation and variance are "absolute"
measures of dispersion, while the coefficient of variation is a "relative"
measure of dispersion.
16) Using the Capital Asset Pricing Model, the required rate of return
for an individual stock is equal to:
(a) Risk free rate plus the market risk premium plus the beta
coefficient
(b) Risk free rate plus the market risk premium minus the beta
coefficient
(c) Risk free rate times the market risk premium plus the beta
coefficient
(d) Risk free rate plus the market risk premium times the beta
coefficient
(e) Risk free rate times the market risk premium minus the beta
coefficient
17) The APT [Arbitrage Pricing Theory] model posits that the most
significant factors influencing the required rate of return are:
(a) Inflation and industrial/economic growth
(b) Inflation, industrial/economic growth and risk premiums
(c) Inflation, industrial/economic growth, risk premiums, risk free rate
and a random error term
(d) Industrial/economic growth, risk premiums and a random error
term
(e) Risk free rate, random error term, and risk premiums
(18) Why is the required rate of return the most dynamic or important
variable used in valuation?
Explanation / Answer
15) The statement is true the standard deviation and variance are "absolute" Measures of dispersion, while the coefficient of variation is a "relative" Measure of dispersion.
16)
The correct answer is option a. Risk free rate plus the market risk premium plus the beta
Coefficient.
17)
The correct answer is option (c). Inflation, industrial/economic growth, risk premiums, risk free rate and a random error term.
18)
The required rate of return (RRR) is used in mutually equity valuation and in corporate finance. Investors use the RRR to decide where to put their money. They evaluate the return of an investment to all other existing options, attractive the risk-free rate of return, inflation and liquidity into reflection in their calculation. The RRR involve the maximum price they are ready to pay for a stock. The RRR is as well used in computation of net present value in discounted cash flow analysis.
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