FINAL EXAM

Question 1

Ch. 12

Total Return Formula

Answer 1

(EV - BV + Div)/BV

Question 2

Ch.12

Capital Gain Formula

Answer 2

(EV - BV) / BV

Question 3

Ch.12

Div Yield Formula

Answer 3

Div/BV

Question 4

Ch.12

Total Return must equal…

Answer 4

Capital Gain + Div Yield

Question 5

Ch.12

When solving for the Geometric Avg. with the calculator, follow these steps:

Answer 5

1. Use N, PMT, PV, FV
2. PV = -1 always
3. Find I/y

Question 6

Ch.12

Arithmetic Mean looks like what on the calculator?

Answer 6

X with a line on top

Question 7

Ch.12

Standard deviation looks like what on the calculator?

Answer 7

Sx =

Question 8

Ch.12

Higher risk means

Answer 8

Higher returns

Question 9

Ch.12

What matters more in driving long run returns?
a. Choice of asset class
b. Asset selection

Answer 9

Choice of asset class (stocks vs. bonds)

Question 10

Ch.12

Efficient Markets Definition

Answer 10

Stock prices are in equillibrium or are “fairly” priced for their level of risk

Question 11

Ch.12

Stock prices respond to changes immediately in this type of market

Answer 11

Efficient Capital Market

Question 12

Ch.12

Weak Form Efficiency

Answer 12

Investors cannot earn abnormal returns from market information

Question 13

Ch.12

Markets are generally this type of form efficiency

Answer 13

Weak-Form

Question 14

Ch.12

Semi-Strong Form Efficiency

Answer 14

Investors cannot earn abnormal returns by trading on public information

Question 15

Ch.12

Insiders tend to earn abnormal returns from this form of efficiency

Answer 15

Strong

Question 16

Ch.12

Strong Form Efficiency

Answer 16

Investors could not earn abnormal returns regardless of the information they possessed

Question 17

Ch.13

The beta measures the

Answer 17

Systematic risk of the stock

Question 18

Ch.13

When is an asset overvalued?

Answer 18

When expected return is less than required return (this is bad)

Question 19

Ch.13

If the beta of a stock is 1.0, the stock R(R) equals…

Answer 19

The return of the market (Rm)

Question 20

Ch.13

When is an asset undervalued?

Answer 20

When expected return is higher than required return (this is good)

Question 21

Ch.13

If the Beta of a stock is 0.0, the R(R) equals…

Answer 21

the Risk-Free rate (Rf)

Question 22

Ch.13

Only systematic risk is important in

Answer 22

completely diversified portfolios

Question 23

Ch.13

When comparing systematic risk in diversified portfolios, choose the asset with…

Answer 23

a lower Beta, because that is less systematic risk

Question 24

Ch.13

T or F: Beta can be used to pick stocks

Answer 24

False, just because a Beta is a certain number, it isn’t the only factor

Question 25

# Ch.14 In WACC's equation, Weights use *blank* and Returns use *blank*

Answer 25

Weights use decimals, and Returns use percentages

Question 26

# Ch.14 Po refers to...

Answer 26

the stock price