FIN 470 Final Exam UPDATED Questions and CORRECT Answers
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Course
FIN 470
Institution
FIN 470
FIN 470 Final Exam UPDATED Questions
and CORRECT Answers
As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were
instructed to use the IRR method, and you need to determine an appropriate hurdle rate. The
risk-free rate is 4%, and the expected market rate...
FIN 470 Final Exam UPDATED Questions
and CORRECT Answers
As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were
instructed to use the IRR method, and you need to determine an appropriate hurdle rate. The
risk-free rate is 4%, and the expected market rate of return is 11%. Your company has a beta
of 0.75, and the project that you are evaluating is considered to have risk equal to the average
project that the company has accepted in the past. According to CAPM, the appropriate
hurdle rate would be - CORRECT ANSWER✔✔- As per CAPM, expected return for the
company = risk free rate + beta *(market return - risk free rate) = 4% + .75*(11-4) = == 4% +
.75*(7) = 9.25%
As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were
instructed to use the IRR method, and you need to determine an appropriate hurdle rate. The
risk-free rate is 3%, and the expected market rate of return is 11%. Your company has a beta
of 1.3, and the project that you are evaluating is considered to have risk equal to the average
project that the company has accepted in the past. According to CAPM, the appropriate
hurdle rate would be - CORRECT ANSWER✔✔- 13.4%.
You invest $200 in security A with a beta of 1.4 and $800 in security B with a beta of 0.3. The
beta of the resulting portfolio is - CORRECT ANSWER✔✔- (200*1.4)+(800*.3)/(200+800)
= 0.52
Standard deviation and beta both measure risk, but they are different in that beta measures -
CORRECT ANSWER✔✔- only systematic risk, while standard deviation is a measure of
total risk.
The capital asset pricing model assumes - CORRECT ANSWER✔✔- all investors are price
takers and have the same holding period.
According to the Capital Asset Pricing Model (CAPM), a well diversified portfolio's rate of
return is a function of - CORRECT ANSWER✔✔- beta risk.
According to the Capital Asset Pricing Model (CAPM), a well diversified portfolio's rate of
return is a function of - CORRECT ANSWER✔✔- market risk.
, In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk is -
CORRECT ANSWER✔✔- beta.
The risk-free rate and the expected market rate of return are 0.05 and 0.13, respectively.
According to the capital asset pricing model (CAPM), the expected rate of return on a
security with a beta of 1.1 is equal to - CORRECT ANSWER✔✔- 13.8%
An overpriced security will plot - CORRECT ANSWER✔✔- below the security market line.
You purchased a share of stock for $25. One year later, you received $1 as a dividend and
sold the share for $29. What was your holding-period return? - CORRECT ANSWER✔✔-
(29-25+1)/25 = 20%
Historical records regarding return on stocks, Treasury bonds, and Treasury bills between
1926 and 2018 show that - CORRECT ANSWER✔✔- stocks offered investors greater rates
of return than bonds and bills.
A year ago, you invested $10,000 in a savings account that pays an annual interest rate of 5%.
What is your approximate annual real rate of return if the rate of inflation was 1.5% over the
year? - CORRECT ANSWER✔✔- 3.5%
Risk, Return, and Historical Record - CORRECT ANSWER✔✔- Question 4
You purchased a share of stock for $120. One year later, you received $1.82 as a dividend and
sold the share for $136. What was your holding-period return? - CORRECT ANSWER✔✔-
None of the options are correct.
Other things equal, an increase in the government budget deficit - CORRECT ANSWER✔✔-
drives the interest rate up.
Which of the following measures of risk best highlights the potential loss from extreme
negative returns? - CORRECT ANSWER✔✔- Value at risk (VaR)
Which of the following statement(s) is(are) true?
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