C09 Module 6 Quiz SCORE 90 PERCENT

Module 6 Quiz
Question 1 1 / 1 point
You have just purchased a 10-year, $1,000 par value bond. The coupon rate on this bond is 8 percent annually, with interest being paid each 6 months. If you expect to earn a 10 percent simple rate of return on this bond, how much did you pay for it?
Question options:

a) $1,122.87


b) $1,003.42


c) $875.38


d) $950.75


e) $812.15

 
Question 2 1 / 1 point
You are holding a stock which has a beta of 2.0 and is currently in equilibrium. The required return on the stock is 15 percent, and the return on an average stock is 10 percent. What would be the percentage change in the return on the stock if the return on an average stock increased by 30 percent while the risk-free rate remained unchanged?
Question options:

a) +20%


b) +30%


c) +40%


d) +50%


e) +60%

 
Question 3 1 / 1 point
The process of discounting or finding the present value of a cash flow to be received in the future is really the reverse of compounding.
Question options:

True

False
Question 4 1 / 1 point
You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6 months. If your simple annual required rate of return is 10 percent with semiannual compounding, how much should you be willing to pay for this bond?
Question options:

a) $826.31


b) $1,086.15


c) $957.50


d) $1,431.49


e) $1,124.62

 
Question 5 1 / 1 point
Cash flow time lines are used primarily for decisions involving paying off debt or investing in financial securities. They cannot be used when making decisions about investments in physical assets.
Question options:

True

False
Question 6 0 / 1 point
Which of the following statements is most correct?
Question options:

a) The SML relates required returns to firms' systematic (or market) risk. The slope and intercept of this line cannot be controlled by the financial manager.


b) The slope of the SML is determined by the value of beta.


c) If you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative, the CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue on into the future.


d) If investors become less risk averse, the slope of the Security Market Line will increase.


e) Statements a and c are both true.

Question 7 1 / 1 point
 One of the potential benefits of investing early for retirement is that an investor can receive greater benefits from the compounding of interest.
Question options:

True

False
Question 8 1 / 1 point
Other things held constant, (1) if the expected inflation rate decreases, and (2) investors become more risk averse, the Security Market Line would shift
Question options:

a) Down and have steeper slope.


b) Up and have less steep slope.


c) Up and keep same slope.


d) Down and keep same slope.


e) Down and have less steep slope.

Question 9 1 / 1 point
The greater the number of compounding periods within a year, the greater the future value of a lump sum invested initially, and the greater the present value of a given lump sum to be received at maturity.
Question options:

True

False
Question 10 1 / 1 point
Assume that you wish to purchase a 20-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $40. If you require a 10 percent simple yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
Question options:

a) $619


b) $674


c) $761


d) $828


e) $902