BUSI 531 all quizzes | questions and answers latest spring 26 - Liberty University.

BUSI 531 All Quizzes in 1 pdf | Questions and Answers | latest Spring 26 Question 1 0 / 2 pts Suppose you buy a round lot of Altman Industries stock on a 50% margin when it is selling at $35 a share. The broker charges a 10% annual interest rate and commissions are 5% of the total stock value on both the purchase and the sale. If at year end you receive a $1.00 per share dividend and sell the stock for $42.63, what is your rate of return on the investment? 19.31% 11.84% 14.74% 21.84% 28.38% Explanation: 100 × 35, loan = 3500 × 0.5 = 1750, interest = 175, commissions = 350, 42.63 + 1 = 43.63, 4363 − 1750 − 175 − 350 = 2088, 2088/1750 − 1 = 19.31% Question 2 2 / 2 pts In a pure auction market, buyers and sellers submit bid-and-ask prices for a given stock to a central location. True False Question 3 2 / 2 pts All of the following are characteristics of a dealer market EXCEPT that: it is a quote-driven market. BUSI 531 All Quizzes in 1 pdf | Questions and Answers | latest Spring NASDAQ market is a dealer market. individual dealers buy and sell shares for themselves. it has a centralized trading location. All of these are characteristics of a dealer market. Question 4 2 / 2 pts Jackie has a margin account with a balance of $150,000. The initial margin deposit is 60% and Turtle Industries is currently selling at $50 per share. If the maintenance margin is 25%, to what price can Turtle Industries fall before Jackie receives a margin call? $14.56 $23.17 $32.42 $26.67 $25.52 Explanation: (5,000P − 100,000)/5,000P = 0.25; P = 26.67 Question 5 2 / 2 pts A corporation wishing to raise funds will normally want the investment banker to use a “best efforts” arrangement rather than a negotiated basis. True FalseIncorrect Question 6 0 / 2 pts Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%. Assume that you purchase 150 shares of RossCorp stock at $45 each by making a margin deposit of 55%. At what price would you receive a margin call? $29.39 $26.48 $50.39 $30.21 $50.10 Explanation: 45 × 150 = 6750; loan = 3037.5, comm = 0.02 × 6750 = 135, (150P − 3037.5 − 135)/150P = 0.30; 150P − 3172.5 = 45P; P = 30.21 Question 7 2 / 2 pts The member of the New York Stock Exchange who acts as a dealer on assigned stocks is known as a registered trader. commission broker. registered broker. floor broker. specialist. Question 82 / 2 pts When a market is externally efficient, it means that new information is represented quickly in prices. True False Question 9 2 / 2 pts Which of the following is NOT a secondary equity market? treasury market national exchanges regional exchanges over-the-counter market call market. Question 10 2 / 2 pts Heidi Talbott has a margin account with a balance of $50,000. The initial margin deposit is 50%, and RC Industries is currently selling at $50 per share. How many shares of RC can Heidi buy? 2,500 2,000 1,000500 250 Explanation: 50,000/0.5 = 100,000; 100,000/50 = 2,000 Question 11 2 / 2 pts A value-weighted index automatically adjusts for stock splits. True False Question 12 2 / 2 pts Stock Price # Shares X Y Z X Y Z January 13, 1,000 2,000 1,000* January 14, 1,000 2,000 2,000 January 15, 1,000** 2,000 2,000 January 16, 3,000 2,000 2,000 *2:1 Split on Stock Z after Close on January 13, 2024 **3:1 Split on Stock X after Close on January 15, 2024 The base date for index calculations is January 13, 2024 Calculate a price-weighted average for January 14.32 30 36.13 34 37 Explanation: 13-Jan 14-Jan X 20 25 Y 40 42 Z 30 18 90 85 divisor 3.0 2.5 average 30 34 Question 13 2 / 2 pts Exchange-traded funds are exactly the same as index mutual funds. can be bought and sold like common stocks. cannot be sold short. have a high management fee. cannot be timed for capital gain tax realizations.Question 14 2 / 2 pts According to the passage, investors who subscribe to ESG (environmental, social, and governance) investing often believe which of the following: ESG factors are the only consideration in making investment decisions Focusing on ESG will lead companies to have higher profits Companies with good ESG scores will outperform the market Some investors prefer investing in companies that do not harm the world and are managed due to ESG focus Question 15 2 / 2 pts The Morgan Stanley Group index for Europe, Australia, and the Far East (EAFE) is a price-weighted index. True False Question 16 2 / 2 pts 31-Dec-23 31-Dec-23 31-Dec-24 31-Dec-24 Stock Price Shares Price Shares W $ 75.00 10,000 $50.00 20,000 X $150.00 5,000 $65.00 10,000 Y $ 25.00 20,000 $35.00 20,000Z $ 40.00 25,000 $50.00 25,000 Stocks W and X had 2 for 1 splits after the close on December 31, 2023. Calculate the price-weighted series for December 31, 2023, after the splits. 72.5 100.0 119.25 121.25 81.69 Explanation: It must have the same index level by adjusting the divisor. New divisor is (75/2 + 150/2 + 25 + 40)/X = 72.5, X = 2.4483 Question 17 2 / 2 pts The Dow Jones Industrial Average is a value-weighted average. True False Question 18 2 / 2 pts A benchmark measures the performance by portfolio managers. TrueFalse Question 19 2 / 2 pts ESG benchmarks can easily be constructed using the same techniques used to construct common equity benchmarks such as the S&P 500 index. True False Question 20 2 / 2 pts Number of shares Closing Prices (per share) Companies outstanding Day T Day T + 1 1 2,000 $30.00 $25.00 2 7,000 55.00 60.00 3 5,000 20.00 25.00 4 4,000 40.00 45.00 Assume that a stock price-weighted indicator consisted of the four issues with their prices. What are the values of the stock indicator for Day T and T + 1, and what is the percentage change? 36.25, 38.75, 6.9% 38.75, 36.25, −6.9% 100, 106.9, 6.9%107.48, 106.33, 1.15% 106.9, 100, 5.7% Explanation: Price T Price T + 1 1 30 25 2 55 60 3 20 25 4 40 45 145 155 divisor 4 4 average 36.25 38.75 % change 6.90%Question 1 2 / 2 pts A technical analyst would consider a put call ratio of ____ as a bearish indicator. 30% 40% 50% 60% 70% Question 2 2 / 2 pts An increase in debit balances in brokerage accounts is viewed by technicians as a bullish sign. True False Question 3 2 / 2 pts When considering markets in Europe, it is inappropriate to assume a level of efficiency similar to that for U.S. markets. True False Question 42 / 2 pts Analysts following what the smart, sophisticated investor is doing would examine mutual fund cash positions. debit balances in brokerage houses. investment advisory opinions. breadth of the market. stocks above their 200-day moving average. Question 5 2 / 2 pts Stock Rit Rmt ai Beta A 10.3% 12% 0 0.6 B 9.4% 9% 0 1.2 Rit = return for stock i during period t Rmt = return for the aggregate market during period t What is the abnormal rate of return for Stock A when you consider its systematic risk measure (beta)? 2.30% 2.10% 3.10% 12.40%17.25% Explanation: R = 0 + 0.6(0.12) = 0.072; 0.103 − 0.072 = 0.031 Question 6 2 / 2 pts According to contrary opinion technicians, the ratio of mutual funds cash to total assets ____ near troughs in the market cycle and ____ near peaks. levels out; spikes remains low; remains high is published near; is not published increases; decreases decreases; increases Question 7 2 / 2 pts What is the standard deviation of an equally weighted portfolio of two stocks with a covariance of 0.009, if the standard deviation of the first stock is 15% and the standard deviation of the second stock is 20%? 2.0% 2.1% 7.8% 14.2% 14.7% Explanation: COV(AB) 0.0090 ER(A) ER(B)SD(A) 15.0% SD(B) 20.0% W(A) 50.0% W(B) 50.0% VAR(AB) = Wa^2 * Sda^2 + Wb^2 * SDb^2 + 2COVabWaWb = 0.02013 SD(AB) = SQRT(VAR(AB)) = 0.14186 Question 8 2 / 2 pts Theoretically, the correlation coefficient between a completely diversified portfolio and the market portfolio should be −1.0. +1.0. 0.0. −0.5. +0.5. Question 9 2 / 2 pts The Markowitz model is based on several assumptions regarding investor behavior. Which of the following is NOT such an assumption? Investors consider each investment alternative as being represented by a probability distribution of expected returns over some holding period. Investors maximize one-period expected utility. Investors estimate the risk of the portfolio on the basis of the variability of expected returns. Investors base decisions solely on the expected return and risk.None of these are correct (that is, all are assumptions of the Markowitz model). Question 10 2 / 2 pts When identifying undervalued and overvalued assets, which of the following statements is FALSE? An asset is properly valued if its estimated rate of return is equal to its required rate of return. An asset is considered overvalued if its estimated rate of return is below its required rate of return. An asset is considered undervalued if its estimated rate of return is above its required rate of return. An asset is considered overvalued if its required rate of return is below its estimated rate of return. An asset is considered undervalued if its estimated rate of return is equal to its required rate of return. Question 11 2 / 2 pts Between 1990 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.18 and 0.16, respectively, and the covariance of these index returns was 0.003. What was the correlation coefficient between the two market indicators? 9.6000 0.0187 0.1042 0.0166 0.3430 Explanation: 0.003/(0.18*0.16) = 0.104167 Question 122 / 2 pts If you borrow money at the RFR and invest the money in the market portfolio, the rate of return on your portfolio will be higher than the market rate of return. True False Question 13 2 / 2 pts The correlation coefficient and the covariance are measures of the extent to which two random variables move together. True False Question 14 2 / 2 pts All of the following are assumptions of the Capital Asset Pricing Model (CAPM) EXCEPT investors can borrow and lend any amount at the risk-free rate. investors all have homogeneous expectations regarding expected returns. investors can have different time horizons, daily, weekly, annual, or some other period. all investments are infinitely divisible. capital markets are in equilibrium. Question 152 / 2 pts The usefulness of CAPM theory is limited in practice due to benchmark error. True False Question 16 2 / 2 pts You expect the risk-free rate (RFR) to be 3% and the market return to be 8%. You also have the following information about three stocks. Current Expected Expected Stock Beta Price Price Dividend X 1.25 $20 $23 $1.25 Y 1.50 $27 $29 $0.25 Z 0.90 $35 $38 $1.00 What are the expected (required) rates of return for the three stocks (in the order X, Y, and Z)? 16.50%, 5.50%, 22.00% 9.25%, 10.5%, 7.5% 21.25%, 8.33%, 11.43% 6.20%, 2.20%, 8.20% 15.00%, 3.50%, 7.30% Explanation:Stock Beta P0 Exp P Exp Div CAPM X 1.25 20 23 1.25 0.0925 Y 1.5 27 29 0.25 0.105 Z 0.9 35 38 1 0.075 ER(Mkt ) = 0.08 RFR = 0.03 Rx = RFR + Beta(X)(ER(M) − RFR) Question 17 2 / 2 pts Under the following conditions, what are the expected returns for stocks A and C? 0 = 0.07 ba,1 = 0.95 k1 = 0.04 ba,2 = 1.10 k2 = 0.03 bc,1 = 1.10 bc,2 = 2.35 14.1% and 17.65% 14.1% and 18.45% 17.65% and 18.45% 18.45% and 17.52% 19.55% and 17.25% Explanation: ba bc Int 0.07 k1 0.04 0.95 1.1k2 0.03 1.1 2.35 ER = 0.141 0.1845 Question 18 0 / 2 pts You expect the risk-free rate (RFR) to be 4% and the market return to be 10%. You also have the following information about three stocks. Current Expected Expected Stock Beta Price Price Dividend A 1.5 $10 $11.50 $1.00 B 1.1 $27 $30 $0.00 C 0.8 $35 $36 $1.50 What is your investment strategy concerning the three stocks? buy A and B; sell C sell A, B, and C sell A and B; buy C buy A, B, and C buy A and C; sell B Question 19 0 / 2 pts A completely diversified portfolio would have a correlation with the market portfolio that is equal to zero because it has only unsystematic to one because it has only systematic risk. less than zero because it has only systematic risk. less than one because it has only unsystematic risk. less than one because it has only systematic risk. Question 20 0 / 2 pts Under the following conditions, what are the expected returns for stocks X and Y? 0 = 0.04 bx,1 = 1.2 k1 = 0.035 bx,2 = 0.75 k2 = 0.045 by,1 = 0.65 by,2 = 1.45 11.58% and 12.8% 15.65% and 18.23% 13.27% and 15.6% 18.2% and 16.45% 22.35% and 13.25% Explanation: bx by Int 0.04 k1 0.035 1.2 0.65k2 0.045 0.75 1.45 ER = 0.11575 0.128Question 1 2 / 2 pts Technical analysis and the efficient market hypothesis have a consistent set of assumptions concerning stock market behavior. True False Question 2 2 / 2 pts The T-Bill-Eurodollar yield spread widens during periods of international crisis. True False Question 3 2 / 2 pts Relative strength charts show time series of price, while bar charts only reflect change regardless of time. True False Question 4 2 / 2 pts One of the potential disadvantages of technical analysis is that it can lead to investing too early, even before fundamental analysts do.True False Question 5 2 / 2 pts The implications of efficient capital markets and a lack of superior analysts have led to the introduction of balanced funds. naive funds. January funds. index funds. futures and options. Question 6 2 / 2 pts Studies examining stock splits support the semistrong form efficient market hypothesis. True False Question 7 2 / 2 pts Asset (A) Asset (B) E(RA) = 8% E(RB) = 15%(A) = 7% (B) = 10% WA = 0.4 WB = 0.6 COVA,B = 0.0006 What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above? 8.0% 12.2% 7.4% 9.1% 11.6% Explanation: 0.4(0.08) + 0.6(0.15) = 0.122 Question 8 2 / 2 pts Between 1986 and 1996, the standard deviation of the returns for the NYSE and the DJIA indexes were 0.10 and 0.09, respectively, and the covariance of these index returns was 0.0009. What was the correlation coefficient between the two market indicators? 0.1000 0.1100 0.1258 0.13220.1164 Explanation: 0.0009/(0.1*0.09) = 0.10 Question 9 2 / 2 pts What is the standard deviation of an equally weighted portfolio of two stocks with a covariance of 0.009, if the standard deviation of the first stock is 15% and the standard deviation of the second stock is 20%? 2.0% 2.1% 7.8% 14.2% 14.7% Explanation: COV(AB) 0.0090 ER(A) ER(B) SD(A) 15.0% SD(B) 20.0% W(A) 50.0% W(B) 50.0% VAR(AB) = Wa^2 * Sda^2 + Wb^2 * SDb^2 + 2COVabWaWb = 0.02013 SD(AB) = SQRT(VAR(AB)) = 0.14186 Unanswered Question 10 0 / 2 pts Asset 1 Asset 2 E(R1) = 0.12 E(R2) = 0.16E(1) = 0.04 E(2) = 0.06 Calculate the expected returns and expected standard deviations of a two-stock portfolio when r1,2 = 0.80 and w1 = 0.60. 0.144 and 0.0002 0.144 and 0.0018 0.136 and 0.0045 0.136 and 0.0455 0.136 and 0.4554 Explanation: Corr(AB ) 0.8000 ER(A) 12.0% ER(B) 16.0% SD(A) 4.0% SD(B) 6.0% W(A) 60.0% W(B) 40.0% VAR(AB) = Wa^2 * Sda^2 + Wb^2 * SDb^2 + 2Corr(ab)(Sda)(SDb)WaWb = 0.00207 SD(AB) = SQRT(VAR(AB)) = 0.04554 ER(AB) = 13.60% Question 11 2 / 2 pts Investors choose a portfolio on the efficient frontier based on their utility functions that reflect their attitudes toward risk.True False Question 12 2 / 2 pts USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset (A) Asset (B) E(RA) = 12% E(RB) = 8% (A) = 15% (B) = 12% WA = 0.30 WB = 0.70 CovA,B = 0.008 What is the standard deviation of this portfolio? 5.45% 11.15% 13.20% 15.45% 16.65% Explanation: COV(AB ) 0.0080 ER(A) 12.0% ER(B) 8.0%SD(A) 15.0% SD(B) 12.0% W(A) 30.0% W(B) 70.0% VAR(AB) = Wa^2 * Sda^2 + Wb^2 * SDb^2 + 2COVabWaWb = 0.01244 SD(AB) = SQRT(VAR(AB)) = 0.11154 Unanswered Question 13 0 / 2 pts Asset (A) Asset (B) E(RA) = 9% E(RB) = 11% (A) = 4% (B) = 6% WA = 0.4 WB = 0.6 COVA,B = 0.0011 What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above? 8.95% 9.30% 9.95% 10.20% 10.70% Explanation: 0.4(0.09) + 0.6(0.11) = 0.102 Question 14 2 / 2 pts Studies indicate that neither firm size nor the time interval used is important when computing beta.True False Question 15 2 / 2 pts A major advantage of the arbitrage pricing theory is the risk factors are clearly and universally identifiable. True False Question 16 2 / 2 pts Findings by Basu that stocks with high P/E ratios tended to outperform stocks with low P/E ratios challenge the efficacy of the CAPM. True False Question 17 2 / 2 pts Cho, Elton, and Gruber tested the APT by examining the number of factors in the return generating process and found that five factors were required using Roll-Ross procedures. six factors were present when using historical mental betas indicated a need for three factors. All of these are correct. None of these are correct. Question 18 2 / 2 pts The equation for the single-index market model is RFRit = ai + bRmt + et. Rit = ai + bRmt + et. Rit = ai + bRFRt + et. Rmt = ai + bRit + et. Rit = ai + b(Rmt − RFRt) + et. Question 19 2 / 2 pts Stock Factor 1 Loading Factor 2 Loading X −0.55 1.2 Y −0.10 0.85 Z 0.35 0.5 The zero-beta return (0) = 3%, and the risk premia are 1 = 10% and 2 = 8%. Assume that all three stocks are currently priced at $50. The expected returns for stock X, stock Y, and stock Z are3%, 8%, 10% 7.1%, 10.5%, 8.8% 7.1%, 8.8%, 10.5% 10%, 5.5%, 14% 14%, 5.5%, 12% Explanation: RP1 RP2 Int 0.1 0.08 X 0.03 −0.55 1.2 0.071 Y 0.03 −0.1 0.85 0.088 Z 0.03 0.35 0.5 0.105 Question 20 2 / 2 pts The capital market line (CML) uses ____ as a risk measurement, whereas the capital asset pricing model (CAPM) uses ____. beta; total risk standard deviation; total risk standard deviation; systematic risk unsystematic risk; total risk systematic risk; betaQuestion 1 2 / 2 pts Net margins are defined as Gross Profit/Sales. Operating Profit/Sales. Net Income/Sales. Sales/Average Accounts Receivable. Debt/Long-Term Capital. Question 2 2 / 2 pts Management may “under-reserve” in order to meet earnings expectations, or they may “over-reserve” in order to smooth future earnings. True False Question 3 2 / 2 pts An overvalued investment is so expensive that we will not receive a fair return if we bought it. True False Question 42 / 2 pts Micro Corp. just paid dividends of $2 per share. Assume that over the next three years dividends will grow as follows: 5% next year, 15% in year two, and 25% in year 3. After that, growth is expected to level off to a constant growth rate of 10% per year. The required rate of return is 15%. Calculate the intrinsic value using the multistage model. $5.56 $66.4 $49.30 $43.66 $35.21 Explanation: 0.15 required return YR 1 2 3 3 D0 D1 D2 D3 P3 constant growth 0.05 0.15 0.25 0.1 2 $2.10 $2.42 $3.02 $66.41 PV $1.83 $1.83 $1.98 $43.67 $49.30 Question 5 2 / 2 pts The dividend discount model (DDM) can be used to value preferred stock by simply using a growth rate of zero in the DDM model. True FalseQuestion 6 2 / 2 pts The dividend growth models are only meaningful for companies that have a required rate of return that exceeds their dividend growth rate. True False Question 7 2 / 2 pts Which of the following is NOT considered a basic economic force? fiscal policy monetary policy inflation P/E ratio All of these are basic economic forces. Question 8 2 / 2 pts XCEL Corporation paid a dividend yesterday for $1.50. They expect to pay dividends annually at a constant 6% annual growth rate indefinitely. If the required rate of return on this investment is 12%, what is the current value of this common stock? $1.50 $12.50 $13.25$25.00 $26.50 Explanation: (1.5)(1.06)/(0.12 − 0.06) = 26.5 Question 9 2 / 2 pts What is the value of a preferred stock that has a par value of $100, a required rate of return of 11%, and pays a 7% annual dividend? $63.64 $157.14 $909.09 $1,428.57 $2,500.00 Explanation: 7/0.11 = 63.64 Question 10 2 / 2 pts Operating margins are defined as Gross Profit/Sales. Operating Profit/Sales. Net Income/Sales. Sales/Gross Profit. Debt/Long-Term Capital.Question 11 2 / 2 pts A high-quality balance sheet typically has limited footnotes. a poor reflection of reality. repeatable earnings. over use of debt or leverage. limited use of debt or leverage. Question 12 2 / 2 pts A company’s dividend last year was $3.00. Dividends are expected to grow indefinitely at 7%, and the required rate of return for the stock is 13%. What is the value of the stock today? $2.83 $23.08 $24.69 $50.00 $53.50 Explanation: 3(1.07)/(0.13 − 0.07) = 53.5 Question 13 2 / 2 pts The growth rate in equity without any external financing is determined by multiplying the payout ratio by the return on equity (ROE).True False Question 14 2 / 2 pts Given an optimistic economic and stock-market outlook for a country, the investor should underweight the allocation to this country in his/her portfolio. True False Question 15 2 / 2 pts If the intrinsic value of an asset is greater than the market price, you would want to buy the investment. True False Question 16 2 / 2 pts USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) (1) The firm’s expected rate of growth of earning per share (2) The amount of capital invested in growth investments(3) The rate of return earned on the funds relative to the required rate of return (4) The required rate of return on the security based on its systematic risk (5) The firm’s dividend payout ratio (6) The time horizon when these growth investments will be available In the listing above, which three factors influence the capital gain component of a growth company? 1, 3, and 5 2, 3, and 4 2, 3, and 6 3, 4, and 5 3, 4, and 6 Question 17 2 / 2 pts USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Left-Aid Corporation DPS $2.45 Total Asset Turnover 3.80 Net Profit Margin 6.50% EPS $3.50 Total Assets/Equity 1.60What is the Left-Aid Corporation’s return on equity (ROE)? 25.5% 27.4% 29.7% 35.6% 39.5% Explanation: ROE = PM * TAT * EM 0.3952 0.065 3.8 1.6 Incorrect Question 18 0 / 2 pts Which of the following is NOT normally associated with cyclical indicators? the Securities and Exchange Commission the Conference Board Business Week Center for International Business Cycle Research All of these are correct. Question 192 / 2 pts An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available: Estimated profit margin = 15% Total asset turnover = 2 Equity Multiplier = 1.2 Estimated dividend payout ratio = 75% Required rate of return = 14% Estimated EPS = $2.50 The firm’s sustainable growth rate is 15%. 10%. 9%. 8%. 7%. Explanation: ROE = PM * TAT * EM 0.36 0.15 2 1.2 RR = 1- PO 0.25 g = ROE(RR) = 0.09 Question 20 2 / 2 ptsExcess liquidity is defined as the year-to year percentage change in the M2 money supply less the year-to-year percentage change in the nominal GNP. the growth rate in the M2 money supply less the growth rate in the M1 money supply. the year-to-year percentage change in the M1 money supply less the year-to-year percentage. the year-to-year percentage change in the “real” GNP less the year-to-year percentage change in the nominal GNP. None of these are correct. Question 21 2 / 2 pts Given Birdchip’s beta of 1.25 and a risk-free rate of 6%, what is the expected rate of return assuming a 12% market return? 1.9% 10.5% 11.0% 13.5% 31.0% Explanation: r = 0.06 + 1.25(0.06) = 0.135 Question 22 2 / 2 pts USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) (1) The firm’s expected rate of growth of earning per share(2) The amount of capital invested in growth investments (3) The rate of return earned on the funds relative to the required rate of return (4) The required rate of return on the security based on its systematic risk (5) The firm’s dividend payout ratio (6) The time horizon when these growth investments will be available In the listing above, which three factors influence the earnings multiple for a stock? 1, 4, and 5 1, 4, and 6 2, 4, and 6 2, 5, and 6 4, 5, and 6 Question 23 2 / 2 pts Recent studies show that money supply changes have an important impact on stock price movements. True False Question 24 2 / 2 pts There is a negative relationship between the capacity utilization rate and the profit margin.True False Question 25 2 / 2 pts Which of the following economic series are included in the Conference Board lagging indicator series? vendor performance index of industrial production manufacturing and trade sales data in 1992 dollars Manufacturers’ new orders, non-defense capital goods average duration of unemployment in weeks Question 26 2 / 2 pts Given Gilbert’s beta of 1.10 and a risk-free rate of 5%, what is the expected rate of return assuming a 10% market return? 21.5% 10.5% 5.5% 15.5% 16.5%Explanation: r = 0.05 + 1.1(0.10 − 0.05) = 0.105 Question 27 2 / 2 pts In Berkshire Hathaway annual reports, Warren Buffet highlights financial tenets that he believes are important. Which of the following is NOT a financial tenet of Warren Buffet? focus on return on equity (ROE) not earnings per share (EPS) calculate owner earnings similar to free cash flow after capital expenditures high profit margins relative to the industry Company should create at least one dollar of market value for every dollar retained. All of these are correct. Question 28 2 / 2 pts The University of Michigan Consumer Sentiment Index is an example of a leading indicator. True False Incorrect Question 29 0 / 2 pts The imported question text for this question was too long. 3.57 4.285.61 7.35 9.81 Question 30 2 / 2 pts The growth rate (g) of dividends is affected by all of the following EXCEPT required return. retention rate. total asset turnover. financial leverage. net profit margin. Question 31 2 / 2 pts Once the offering has been deemed effective, the investment bank and the issuing firm have a/an _____. indication of interest pricing meeting registration statement road show prospectusQuestion 32 2 / 2 pts One recent improvement in CEO compensation practices is having more independent board members on compensation committees. True False Question 33 2 / 2 pts When a firm decides to go public, it hires an investment bank to lead the company through the process. True False Question 34 2 / 2 pts _____ refers to the rules, policies, and procedures that are used to direct and control a company. Corporate governance Capital allocation Executive compensation Going public A stock pitch Question 352 / 2 pts A company is expected to have a higher ESG score if shareholder and management interests are more closely aligned. True False Question 36 2 / 2 pts Buy-side analysts typically cover the stocks within a particular industry and produce reports that are intended to help the sell-side reach investment decisions. True False Question 37 2 / 2 pts One goal of investing in companies with high ESG scores is to reduce the transparency of the portfolio investments. True False Question 38 2 / 2 pts Capital allocation is the description of how management uses resources to create value on behalf of shareholders.True False Question 39 2 / 2 pts The preliminary prospectus is often referred to as a/an _____. SEC form S-1 red herring registration statement winner’s curse green shoe Question 40 2 / 2 pts A stock went public at $15 and closed at $17.70. What was the underpricing percentage? 15% 17% 18% 17.70% 15.25% Explanation:Initial Price (IP) $15.00 Close Price (CP) $17.70 Underpricing % (IPCP)/IP 18.0% Question 41 2 / 2 pts When a company acquires another public company, it typically pays a significant premium above the previous market price. True False Question 42 2 / 2 pts A stock pitch includes all of the following EXCEPT that stock returns are mean reverting. merits of a stock. models and multiples. risks. background information about the company. Question 43 2 / 2 pts A company is going public with an offering price of $10 per share. The gross spread is 7%. How much will the bank receive? How much will the issuing firm receive?$1.07; $17.00 $1.70; $7.00 $0.70; $9.30 $7.00; $10.00 $7.00; $3.00 Explanation: Offer price $10.00 spread 0.07 Bank funds $0.70 Issuing P(1-spread) $9.30 Question 44 2 / 2 pts Linking CEO compensation directly to share price is preferred because stock prices depend on corporate performance primarily and do not depend significantly on external factors. True False Question 45 2 / 2 pts _____ is the description of how management uses resources to create value on behalf of shareholders. Corporate governanceCapital allocation Executive compensation Going public A stock pitchQuestion 1 2 / 2 pts The growth rate of equity earnings without external financing is equal to retention rate plus return on equity. retention rate minus return on equity. retention rate divided by return on equity. retention rate times return on equity. return on equity divided by the retention rate. Question 2 2 / 2 pts Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8% per year for the next five years. After that, dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%. The future price of the stock in year 5 is $113.40. $122.47. $132.27. $142.85. $154.28. Explanation: 0.07 required return YR 1 2 3 4 5 6 5 D0 D1 D2 D3 D4 D5 D6 P5growth 0.08 0.08 0.08 0.08 0.08 0.05 2 $2.16 $2.33 $2.52 $2.72 $2.94 $3.09 $154.28 Question 3 2 / 2 pts Consider a firm that has just paid a dividend of $1.5. An analyst expects dividends to grow at a rate of 9% per year for the next three years. After that, dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%. The price of the stock today (P0) is $84.81. $87.92. $91.09. $94.32. $97.61. Explanation: 0.07 required return YR 1 2 3 3 D0 D1 D2 D3 P3 constant growth 0.09 0.09 0.09 0.05 1.5 $1.64 $1.78 $1.94 $101.98 PV $1.53 $1.56 $1.59 $83.25 $87.92 Incorrect Question 4 0 / 2 pts Using the constant growth model, a decrease in the required rate of return from 19 to 17% combined with a decrease in the growth rate from 11 to 9% would cause the price tofall more than 2%. fall less than 2%. remain constant. rise more than 2%. rise less than 3%. explanation: Div(1.11)/(0.19 − 0.11) switch to Div(1.09)/(0.17 − 0.09); Only numerator is changing by 2%. Question 5 2 / 2 pts Tayco Corporation has just paid dividends of $3 per share. The earnings per share for the company were $4. If you believe that the appropriate discount rate is 15% and the long-term growth rate in dividends is 6%, and earnings is 6%, then the firm’s P/E ratio is 8.83. 33.33. 44.44. 11.11. 10.10. Explanation: 3(1.06)/(0.15 − 0.06) = 35.33; 35.33/4 = 8.83 Question 6 2 / 2 pts A company’s dividend last year was $3.00. Dividends are expected to grow indefinitely at 7%, and the required rate of return for the stock is 13%. What is the value of the stock today? $2.83$23.08 $24.69 $50.00 $53.50 Explanation: 3(1.07)/(0.13 − 0.07) = 53.5 Question 7 2 / 2 pts The most appropriate discount rate to use when applying the Operating Free Cash Flows model is the firm’s required rate of return based on the capital asset pricing model (CAPM). required rate of return based on the dividend discount model (DDM). weighted average cost of capital (WACC). historical cost of debt and equity. All of these are correct. Incorrect Question 8 0 / 2 pts The required rate of return is determined by (1) the real risk-free rate, (2) the expected rate of inflation, and (3) liquidity risk. True FalseQuestion 9 2 / 2 pts The growth rate of dividends and profit margin are the main determinants of the P/E ratio. True False Question 10 2 / 2 pts Ross Corporation paid dividends per share of $1.20 at the end of 2013. At the end of 2023, it paid dividends per share of $3.50. Calculate the compound annual growth rate in dividends. 52.17% 34.28% 23% 19.17% 11.30% Explanation: (3.5/1.2)^(0.1) − 1 = 0.11298 Question 11 2 / 2 pts The gross margin is defined as Gross Profit/Sales. True FalseQuestion 12 2 / 2 pts What is the value of a 10% semi-annual coupon bond with a par value of $1,000 that matures in 5 years and has a required rate of return of 9%? $1,021.95 $1,038.90 $1,039.56 $1,064.18 $1,078.23 Explanation: PV PMT I/Y N FV $1,039.56 50 0. Question 13 2 / 2 pts Using the constant growth model, a decrease in the required rate of return from 15 to 13% combined with an increase in the growth rate from 5 to 6% would cause the price to rise more than 50%. rise less than 50%. remain constant. fall more than 50%. fall less than 50%.Question 14 2 / 2 pts Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8% per year for the next five years. After that, dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%. The present value today of dividends for years 1 to 5 is $4.06. $10.28. $12.40. $14.52. $10.0. Explanation: 0.07 required return YR 1 2 3 4 5 D0 D1 D2 D3 D4 D5 growth 0.08 0.08 0.08 0.08 0.08 2 $2.16 $2.33 $2.52 $2.72 $2.94 PV $2.02 $2.04 $2.06 $2.08 $2.10 PV of div $10.28 Question 15 2 / 2 pts Davenport Corporation’s last dividend was $2.70, and the directors expect to maintain the historic 5% annual rate of growth. How much should you be willing to pay for the stock if you feel that the 5% growth rate can be maintained indefinitely and you require a 17% return? $22.16$19.28 $21.32 $23.63 $25.46 2.7(1.05)/(0.17 − 0.05) = 23.625 Question 16 2 / 2 pts The aggregate market currently has a retention ratio of 60%, a required rate of return of 12%, and an expected growth rate for dividends of 4%. Starting with the initial conditions, you expect the retention ratio to be constant, the rate of inflation to increase by 2%, and the growth rate to increase by 1%. What is the expected P/E? 4.44 5.00 5.71 6.67 8.00 Exlanation: RR = 1 − PO 0.6 g 0.05 EPS = 1 Required Rate = 0.14 Price = 4.44444 4P/E = 4.44444 4 Question 17 2 / 2 pts Price-to-book value ratio cannot be used to estimate the value of firms with negative earnings or negative cash flows. True False Question 18 2 / 2 pts In the present value of operating free cash flow technique, the firm’s operating free cash flow to the firm is discounted at the firm’s weighted average cost of capital (WACC). True False Question 19 2 / 2 pts Which of the following statements concerning global company analysis is FALSE? Analysis of companies within industries should be extended to include foreign companies. There is a problem in obtaining data that is required for a thorough company analysis of foreign companies.Foreign companies’ financial risk should be evaluated over time. Differences in relative measures can be explained by the variations in accounting procedures among countries and investors attitudes within each country. None of these are correct. Question 20 2 / 2 pts Which of the following is NOT considered when looking at the free cash flow to equity technique? depreciation expense change in working capital principal debt repayments change in the competitive environment net income Question 21 2 / 2 pts Building permits for new private housing units are listed as a leading indicator by the Conference Board. True False Question 22 2 / 2 pts Investment Beta Analyst’s Estimated ReturnStock X 2.3 15.5% Stock Y 1.2 13.6% Market Portfolio 1.0 11.5% Risk-free rate 4.0% What is the required rate of return for Stock Y based on the capital asset pricing model (CAPM)? 11.5% 13.0% 13.6% 14.8% 15.5% Explanation: r = 0.04 + 1.2(0.115 − 0.04) = 0.13 Question 23 2 / 2 pts If interest rates increase due to inflation, but expected cash flows to a firm do not change, then you would expect stock prices to rise. rise and then decline. remain unchanged. decline. decline and then rise.Question 24 2 / 2 pts _____ tend to move in anticipation of the business cycle, turning up in anticipation of recovery and turning down at signs of economic weakness. Financial stocks Consumer durable goods Capital goods Cyclical companies Consumer staples Question 25 2 / 2 pts Johnson Company just paid an annual dividend of $1.75. The next dividend will be paid one year from today. Johnson Company expects a constant growth of 5% in dividends forever. The required rate of return for this company’s common stock is 13%. What is the value of one share of common stock? $1.55 $13.46 $14.13 $21.88 $22.97 Explanation: (1.75*1.05)/(0.13 − 0.05) = 22.97 Question 26 2 / 2 ptsThe dividend payout ratio for the aggregate market is 55%, the required rate of return is 15%, and the expected growth rate for dividends is 7%. Compute the current earnings multiple. 3.93 78.6 6.88 39.3 7.89 Explanation: div po 0.55 r 0.15 g 0.07 P/E = PO/(r − g) = 6.875 Question 27 2 / 2 pts You are using the free cash flow to equity (FCFE) technique to analyze the U.S. equity market. The beginning FCFE is $90, and the required rate of return is 10%. Free cash flows are expected to grow at a 10% rate for the next two years and then grow at a constant rate of 7% forever. What will FCFE be three years from now? 108.90 116.52 117.00 119.79120.21 Explanation: Yr 0 1 2 3 g 0.1 0.1 0.07 FCFE 90 99 108.9 116.523 Question 28 2 / 2 pts Evidence that a firm has high business risk would be provided by its volatile ____. fixed costs. profit after taxes. operating profit. sales. employee turnover. Question 29 2 / 2 pts What variables impact the Price/Sales ratio? sales growth rate, volatility of sales growth, profit margin earnings growth rate, volatility of sales growth, profit margin earnings growth rate, volatility of sales growth, operating margin sales growth rate, volatility of sales growth, operating marginsales growth rate, volatility of profit margin, profit margin Question 30 2 / 2 pts As an economist for a research firm, you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been slow for 5 years, you expect the dividend-payout ratio to be 55%. Long-term government bond rates are at 6%, and the equity risk premium is estimated to be 3%. Return on equity (ROE) is estimated to be 11%. What is the expected growth rate? 3.00% 3.92% 4.95% 5.27% 6.05% Explanation: ROE 0.1 1 RR = 1 − PO 0.4 5 g = ROE(RR) = 0.0495 Question 31 2 / 2 pts Investors want directors who will voice their opinion, who are not beholden to the CEO or board chair, and who have enough experience that their opinion carries weight on the board. TrueFalse Question 32 2 / 2 pts The fee paid to the underwriter is called the tactical spread. net spread. gross spread. listing fee. banking fee. Question 33 2 / 2 pts In a _____, the issuing company could agree to sell the shares at a price below the clearing price. bookbuilt offering discount offering dirty auction clean auction green shoe Question 34 2 / 2 pts A growing percentage of institutional investors are integrating environmental, social, and governance (ESG) factors into their investment decisions.True False Question 35 2 / 2 pts Kaplan (2013) argues that the market for top executives is competitive, and the compensation of other professionals is growing even faster. True False Question 36 2 / 2 pts The overallotment option gives the investment bank the right to buy _____ more shares within the next _____. 5%; 10 days 30%; 10 days 10%; 30 days 30%; 15 days 15%; 30 days Question 37 2 / 2 pts Linking CEO compensation directly to share price is preferred because stock prices depend on corporate performance primarily and do not depend significantly on external factors.True False Question 38 2 / 2 pts A stock pitch is like a book report or a news report. True False Incorrect Question 39 0 / 2 pts The underpricing during the 1999–2000 technology bubble was above _____. 18% 30% 25% 66% 55% Question 40 2 / 2 pts Advantages of a company going public include all of the following, EXCEPT thatpublicly traded stock provides valuable signaling information concerning the health of the company. the original investors and the management team would like liquidity. it is easier to use public stock as currency to acquire other companies. it might need more capital in order to finance growth. management must answer to outside shareholders. Question 41 2 / 2 pts The declaration date is the date that a dividend is announced by the board of directors. True False Question 42 2 / 2 pts Capital allocation is the description of how management uses resources to create value on behalf of shareholders. True False Question 43 2 / 2 pts The _____ refers to firms that actually invest in -side sell-side SEC issuing firm investment bank Question 44 2 / 2 pts The key issues that investors seem to care about with respect to a board include all of the following, EXCEPT the size of the board. the independence of the board. how the board responds to shareholder proposals. separation of the CEO and board chair positions. how management is compensated. Question 45 2 / 2 pts The sell-side refers to firms that facilitate securities transactions. True FalseQuestion 1 2 / 2 pts Firms with a high ESG score are most likely to outperform the market overall. True False Question 2 2 / 2 pts All of the following are advantages of ETFs over mutual funds EXCEPT The ability for continuous trading while markets are open. the ability to time capital gain tax realizations. a smaller management fee. ETFs can be bought and sold like common stock. smaller brokerage commission. Question 3 2 / 2 pts Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios? timing the markets by shifting between different types of securities based on market forecasts and estimated risk premiums. shifting funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the “hot” concept before the remainder of the market does. individual stock picking in order to buy low and sell tactical asset allocation strategies. All of these are correct. Incorrect Question 4 0 / 2 pts The top 10 positions in the Vanguard ESG fund account for approximately ____ percent of the fund’s total value. 10% 20% 30% 40% 50% Incorrect Question 5 0 / 2 pts An attempt on the manager’s part to generate alpha is generally referred to as indexing. True False Question 6 2 / 2 pts The three basic techniques for constructing a passive index are: full replication, sampling, and linear programming.True False Question 7 2 / 2 pts If you have a portfolio with a market value of $100 million and a beta (measured against the S&P 500) of 1.5, then if the market rises by 10%, what value would you expect your portfolio to have? $100 million $110 million $150 million $165 million $1.65 billion Explanation: 100*(1.1)*1.5 = 165 Question 8 2 / 2 pts The three major theories explaining the term structure of interest rates are the expectations hypothesis, the liquidity differential hypothesis, and the segmented quality hypothesis. True False Question 9 2 / 2 ptsWhich of the following statements regarding Collateralized Debt Obligations (CDOs) is FALSE? CDOs experienced rapid growth since the year 2000. The assets used to back the CDOs are substantially diverse. The credit quality within a CDO at the time of issue is diverse. CDOs have generated significant credit and liquidity problems. All of these are correct. Question 10 2 / 2 pts Revenue bonds are U.S. Treasury bonds backed by the full faith and credit of the issuer. U.S. Treasury bonds backed by income generated from specific projects. municipal bonds backed by the full faith and credit of the issuer. municipal bonds backed by income generated from specific projects. a type of U.S. agency security. Question 11 2 / 2 pts According to the segmented market hypothesis, yields for a particular maturity segment depend on supply and demand within the maturity segment. True FalseQuestion 12 2 / 2 pts Which of the following statements is not true regarding bond ratings? The ratings assigned are meant to indicate the probability of default for the bond issuer. The bonds assigned one of the top four rating classes are considered investment-grade bonds. Once a rating is assigned to an issue, it cannot be changed for the first two years after which it is reviewed on a regular basis. Bonds rated BB and below are referred to as high yield or “junk” bonds. The rating agencies modify the ratings with + and − signs or numbers after the letters. Question 13 2 / 2 pts A 7.0% coupon bond issued by the State of Tennessee sells for $1,000. What coupon rate on a corporate bond selling at $1,000 par value would produce the same after-tax return to the investor as the municipal bond if the investor is in the 29% marginal tax bracket? 7.59% 12.25% 9.86% 14.63% 30.71% Explanation: Muni rate 0.07 tax rate 0.29Equivalent corp bond rate = (muni rate)/(1 − tax rate) 0.0986 Question 14 2 / 2 pts Option adjusted duration can be calculated as duration of noncallable bond − duration of call option on the bond. duration of noncallable bond + duration of call option on the bond. duration of callable bond − duration of call option on the bond. duration of callable bond + duration of call option on the bond. None of these are correct. Question 15 2 / 2 pts Suppose the current six-year spot rate is 8% and the current five-year spot rate is 7%. What is the one year forward rate in five years? 12.62% 11.58% 13.14% 14.65% 15.14% Explanation: 6 yr spot 0.08 1.5869 5 yr spot 0.07 1.4026implied fwd = 1.5869 / 1.4026 − 1 implied fwd = 0.1314 Question 16 2 / 2 pts Interest rate anticipation is one of the matched funding techniques that matches anticipated interest rates with the required rates on a portfolio. True False Question 17 2 / 2 pts Contingent procedures for managing bond portfolios are a form of what has come to be called structured active management. True False Question 18 2 / 2 pts Consider two bonds, both pay semiannual interest. Bond A has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9% per year, and a face value of $1,000. Bond B has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9.5% per year, and a face value of $1,000. Calculate the percentage gain per invested dollar for Bond A assuming a one-year horizon, and a reinvestment rate of 9% per year. 9.73%9.93% 9.20% 8.20% 9.50% Explanation: (1 + 0.09/2)^2 − 1 = 0.0920 Question 19 2 / 2 pts A manager following an interest rate anticipation strategy would shorten portfolio duration if interest rates were expected to increase. True False Question 20 2 / 2 pts The bond management strategy intended to eliminate interest rate risk is immunization. True FalseAn individual who selects the investment that offers greater certainty when everything else is the same is known as a risk-averse investor. True False Question 2 2 / 2 pts You are provided with the following information: Nominal return on risk-free asset = 4.5% Expected return for asset i = 12.75% Expected return on the market portfolio = 9.25% Calculate the risk premium for asset i. 4.5% 8.25% 4.75% 3.5% 0% Explanation: 12.75% − 4.5% = 8.25% Question 3 2 / 2 pts You are provided with the following information:Nominal return on risk-free asset = 4.5% Expected return for asset i = 12.75% Expected return on the market portfolio = 9.25% Calculate the risk premium for the market portfolio. 4.5% 8.25% 4.75% 3.5% 0% Explanation: 9.25% − 4.5% = 4.75% Question 4 2 / 2 pts The basic trade-off in the investment process is between the anticipated rate of return for a given investment instrument and its degree of risk. between understanding the nature of a particular investment and having the opportunity to purchase it. between the high returns available on single instruments and the diversification of instruments into a portfolio. between the desired level of investment and possessing the resources necessary to carry it out. None of these are correct. Question 5 2 / 2 ptsThe annual rates of return of Stock Z for the last four years are 0.10, 0.15, −0.05, and 0.20, respectively. Compute the geometric mean rate of return for Stock Z. 0.051 0.074 0.096 0.150 1.090 Explanation: (1.1 × 1.15 × 0.95 × 1.2)^(1/4) − 1 = 0.0958 Question 6 2 / 2 pts The common stock of XMen Inc. had the following historic prices. Time Price of X-Tech 3/01/2019 50.00 3/01/2020 47.00 3/01/2021 76.00 3/01/2022 80.00 3/01/2023 85.00 3/01/2024 90.00 What was your annual holding period yield (annual HPY)? 0.14620.1247 1.8 0.40 0.25 Explanation: Annual HPR = 1.8^(1/5) = 1.1247; Annual HPY = Annual HPR − 1 = 1 − 1.1247 = 0.1247 Question 7 2 / 2 pts The coefficient of variation is the expected return divided by the standard deviation of the expected return. True False Question 8 2 / 2 pts You purchased 100 shares of GE common stock on January 1 for $29 a share. A year later, you received $1.25 in dividends per share and you sold it for $28 a share. Calculate your holding period return (HPR) for this investment in GE stock. 0.9655 1.0086 1.0357 1.0804 1.0973Explanation: (28 + 1.25)/29 = 1.0086 Question 9 2 / 2 pts The two most common calculations investors use to measure return performance are arithmetic means and geometric means. True False Question 10 2 / 2 pts If a significant change is noted in the yield of a T-bill, the change is most likely attributable to a downturn in the economy. static economy. change in the expected rate of inflation. change in the real rate of interest. change in risk aversion. Question 11 2 / 2 pts The ____ phase is the stage when investors in their early-to-middle earning years attempt to accumulate assets to satisfy near-term needs, for example, children’s education or down payment on a home. accumulation spendinggifting consolidation divestiture Question 12 2 / 2 pts Research from the 1970s to the 1990s found that over 90% of a fund’s returns over time are explained by market timing. stock selection. manager selection. asset allocation. cash allocation. Incorrect Question 13 0 / 2 pts An individual in the 15% tax bracket has $10,000 invested in a tax-exempt IRA account. If the individual earns 8% annually before taxes and inflation is 2.5% per year, what is the real value of the investment in 20 years? $23,211 $28,467 $29,178 $37,276 $46,610Explanation: 10,000(1.055)^20 = 29,177.57 Incorrect Question 14 0 / 2 pts The imported question text for this question was too long. 13.57% 15.68% 21.68% 25.74% 29.55% Explanation: $14,325 + 0.28(85,000 − 70,350) = 18,427; 18427/85,000 = 0.2168 Question 15 2 / 2 pts Investment planning is complicated by tax concerns. True False Question 16 2 / 2 pts The following are the annual returns for both Alpine Corporation and Tauber Industries: Alpine’s Tauber’s Year Rate of Return Rate of Return1995 5% 9% 1996 9% 16% 1997 11% −16% 1998 −10% 12% 1999 12% 9% Calculate the covariance. −0322 −0233 1.00 0.00233 0.00322 Explanation Alpine Tauber Alpine Tauber return return deviation deviation Covarianc e 0.05 0.09 −0.004 0.03 −0.00012 0.09 0.16 0.036 0.1 0.0036 0.11 −0.16 0.056 −0.22 −0.01232 −0.1 0.12 −0.154 0.06 −0.00924 0.12 0.09 0.066 0.03 0.00198 mean 0.054 0.06 −0.00322Question 17 2 / 2 pts John is 55 years old and has $55,000 outstanding on a mortgage and no other debt. John typically saves $5,000 in an IRA account and another $10,000 in a company pension. John is most likely in the discovery phase. accumulation phase. consolidation phase. spending phase. gifting phase. Question 18 2 / 2 pts Assume that you invest $750 at the end of each quarter for the next 20 years in a mutual fund. The annual rate of interest that you expect to earn in this account is 5.25%. The amount in the account at the end of 20 years is $60,000.00. $105,039.84. $37,009.35. $123,510.52. $115,637.37. Explanation: PV = 0; PMT = 750; N = 80; I/Y = 5.25/4; CPT FV = Question 19 2 / 2 pts Which of the following is NOT a life cycle phase?discovery phase accumulation phase consolidation phase spending phase gifting phase Question 20 2 / 2 pts A study examining the performance of numerous assets from the United States and around the world confirms that riskier assets with higher standard deviations experienced lower returns. riskier assets with higher standard deviations experienced higher returns. standard deviation did a better job of explaining the returns than beta. U.S. equities are highly correlated with world government bonds and with the commodities index. most assets (including common stocks) have positive correlations with inflation.