13. If the Beta for stock A is less than one, then according to the CAPM a. stoc

Question

13. If the Beta for stock A is less than one, then according to the CAPM a. stock A's required return is equal to the required return on the market portfolio. b. stock A's required return is equal to the risk-free rate of return. c. stock A's required return is less than the required return on the market portfolio. d. stock A's required return is greater than the required return on the market portfolio. 14. systematic risk. is used as a measure of total risk;is used as a measure of a. Beta; beta b. Beta; standard deviation c. Standard deviation; beta d. Standard deviation; standard deviation 15. You decide to save up for a big trip and deposit $3,250 in a special vacation account today. If your account earns 8.1% annually, how much will you have available to spend in 6 years? a. $3,674.41 b. $4,067.48 c. $4,406.09 d. $5,186.06 16. To measure value, the concept of time value of money is used a. to determine the interest rate paid on corporate debt b. to bring the future benefits and costs of a project, measured by its expected profits, back to the present. c. to bring the future benefits and costs of a project, measured by its cash flows, back to the present. d. to ensure that expected future profits exceed current profits today 17. You just graduated and landed your first job in your new career. You remember that your favorite finance professor told you to begin the painless job of saving for retirement as soon as possible, so you decided to put away $$,000 at the end of each year in a Roth IRA. Your expected annual rate of return on the IRA is 95% How much will you accumulate after 37 years of investing? Round to the nearest dollar. a. $1,071,593 b. $1,178,740 c, $1,323,172 d. $1,459,428 4 of 6

Explanation / Answer

1)

Stock A' required return is less than the required return of the market portfolio.

For example: if risk free rate is 5%, return on market portfolio is 10% and beta is 0.8, require return is = 0.05 + 0.8 ( 0.1 - 0.05 ) = 0.09 or 9% which is less than 10%

2)

c. standard deviation; beta

Standard deviation is a measure of total risk of the portfolio whereas beta measures the market or systematic risk

3)

Future value = Present value ( 1 + r)n

Future value = 3,250 ( 1 + 0.081)6

Future value = 3,250 * 1.595711

Future value = $5,186.06

16)

c. to bring the future benefits and costs of a project, measured by it's cash flows, back to the present

Time value money concpet is used to discount the future cash inflows and outflows using a discount rate and bring it to the present . This helps in determining whether the project needs to considered or not.

17)

Future value = Annuity * [ ( 1 + r)n - 1] / r

Future value = 5,000 * [ ( 1 +0.095)37 - 1] / 0.095

Future value = 5,000 * 291.885534

Future value = $1,459,428

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.