1. Given that investors can diversify, which of the Stock A has a capital gains
ID: 2806762 • Letter: 1
Question
1. Given that investors can diversify, which of the Stock A has a capital gains yield of 8% and Stock B has a capital gains yield of 13%. 4, following risks is irrelevant? (In other words, which Both stocks have a risk does not matter?) required return of 14%, which of the following is A. Unsystematic risk B. Market risk FALSE? A. Stock 8 doesn't pay a dividend. B. Stock B has a higher price growth rate C. Stock A has a higher dividend yield. D. Stock A MUST have a higher dividend. C. Non-diversifiable risk D. Systematic risk E. All risks are always relevant 2. Which of the following is true about a stock with a 5. The current value of a bond is based: A. on the yield to maturity and the coupon rate. 8. on the present value of the coupons plus the Beta of 1 A. The stock has the same unsystematic risk as the market B. The stock is not risky. present value of the price. C. on the present value of all future cash flows from the bond. D. on the coupon payments plus par value at matur C. The stock must be well-diversified. D. The stock has the same systematic risk as the arket 6. The primary goal of financial management is to maximize the: A. current net income. B. the number of shares outstanding C. price of the stock. D. revenue growth. 3. The current price of a stock is based: on the future value of the cash flows derived from the stock. A. B. only on the anticipated future dividends. C. only on the anticipated future stock price. . on the present value of all the future cash flows from that stockExplanation / Answer
1. A
the unsystematic risk can be diversified away and thus in irrelevant.
2.C
Beta is a measure of how stock moves wrt to market. when stock is well diversified it follows the market and thus its beta is 1
3.D
The current price of any instrument is based on the future cash flows from the instrument
4.D
if stock A would have had a higher dividend its capital gains yield would be higher
5.C
The current price of any instrument is based on the future cash flows from the instrument
6.A
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