Finance for Non-Finance Professionals - Week 4 Quiz 2

quiz5.txt

1.
Question 1
Stock A has a beta of 0.8, whereas stock B has a beta of 1.5. Which one of these stocks would you recommend to a very risk-averse investor?

1 point

### Stock A


Stock B

2.
Question 2
What is the beta of the market portfolio?

1 point

0.0


0.5


### 1.0

3.
Question 3
Firm A has a debt-equity ratio of 100%, whereas firm B has a debt-equity ratio of 10%. Suppose A and B are identical in all other aspects. Which one should have a higher beta?

1 point

### Firm A - higher financial leverage and should therefore be more risky


Firm B

4.
Question 4
Company XYZ has a beta of 1.5. Assume the Treasury bond rate is 7%, and the risk premium is 9.5%. What is the expected return on XYZ’s stock?

1 point

### 21.25%


13.65%


31.8%


8.5%

5.
Question 5
A stock has an expected return of 10.2%, the risk-free rate is 4%, and the market risk premium is 7%. What must be the beta of this stock?

1 point

0.85


0.75


### 0.89


1.12

6.
Question 6
Company XYZ has a target capital structure of 50% equity and 50% debt. Its cost of equity is 10%, and cost of debt is 5%. Suppose there is no tax. Should the company take on a project that demands an initial investment of $500 million, and provides an income of $600 million in 2 years?

1 point

### Yes


No

7.
Question 7
In the above example, what if the income of $600 million comes in 3 years?

1 point

Yes


### No

8.
Question 8
A company has 25% of its assets financed by debt. What is this company’s debt-equity ratio?

1 point

100%


75%


66.6%


### 33.3%

9.
Question 9
A company has a debt-equity ratio of 50%. How much of this company’s assets are financed by equity?

1 point

### 66.6%


50%


25%


10%

10.
Question 10
Company FIN has a WACC of 9.8%, a cost of equity of 13%, and a cost of debt of 6.5%. What is FIN’s debt-equity ratio?

1 point

### 97%


100%


90%


85%