BUS 401 Week 4 Quiz - All Questions Answered Correctly

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Question 1.Which of the following statements regarding the cost of equity is true? 

  •   It can be estimated in three different ways.   
  •   It is always estimated using the present value of future dividends approach.   
  •   It is estimated by solving for the discount rate for a perpetuity.   
  •   It is generally lower than the cost of debt because equity holders are paid after taxes are paid.

 

Question 2.In the Capital Asset Pricing Model, the risk-free rate: 

  •   links the CAPM to current market conditions.   
  •   is the historic long-term average rate of government bonds.   
  •   can be approximated by using yields on high-rated corporate bonds.   
  •   is always the current yield on 30-year US government Treasury bonds.   

 

Question 3.In the Capital Asset Pricing Model, the market risk premium is best approximated by: 

  •   the most recent one-year return on the S&P 500 Index (or another market index).   
  •   the long-term historic return on a stock market index such as the S&P 500 (or another market index).   
  •   the long-term average spread of the S&P 500 (or another market index) over the yield of long-term government bonds.   
  •   the return of the S&P 500 (or another market index) over the current yield of long-term government bonds.

 

Question 4.Investors will make an investment if:

  •   the historical rate of return exceeds the expected rate of return.   
  •   the required rate of return exceeds the expected rate of return.   
  •   the expected rate of return exceeds the actual rate of return.   
  •   the expected rate of return exceeds the required rate of return.

 

Question 5.If a firm just paid a dividend equal to $4.00 a share, then for the WACC, in order to find the cost of equity, $4 should be: 

  •   divided by the current price of the stock, and the quotient should be added to the dividend growth rate.   
  •   divided by the current price of the stock.   
  •   multiplied by one minus the tax rate, and the difference divided by the current price of the stock.   
  •   multiplied by the sum of one plus the growth rate, and then divided by the current price of the stock; this quotient should be added to the dividend growth rate.   
  •  

Question 6.Which of the following is true regarding market risk? 

  •   It is measured by beta.   
  •   It is also called nondiversifiable risk.   
  •   It is also called systematic risk.   
  •   all of the above   

 

Question 7.Chapter 9 discusses three different types of returns. Identify the item in the list below that is NOT one of those three types of returns. 

  •   the actual rate of return   
  •   the expected rate of return   
  •   the risk-free rate of return   
  •   the required rate of return    

Question 8.The discount rate used in project evaluation should: 

  •   be based on the firm’s overall risk.   
  •   be based on each project’s risk.   
  •   be estimated using the WACC for all projects.   
  •   All of the above are correct.   

 

Question 9.Which of the following statements regarding the cost of debt is true? 

  •   The cost of debt for bonds equals the coupon rate of outstanding bonds.   
  •   The cost of debt for bonds is found by dividing the price by the annual coupon.   
  •   The cost of debt for bonds is found by calculating their yield to maturity.   
  •   The cost of debt equals the flotation costs charged by investment bankers who advise the firm.

 

Question 10.If an investor purchases a share of stock for $300, collects a dividend during the year equal to $35 a share, and sells the stock at the end of the year for $289, what is the investor’s return for the year? 

  •   12.11%   
  •   8.30%   
  •   8.00%   
  •   15.33%   

Need Other Tutorials For BUS 401?

You may click on the links below to go to respective tutorial.

·         BUS 401 Week 1 Assignment ( Financial Management Challenges and Ethics )

·         BUS 401 Week 1 Discussion 1 ( The Role of Financial Management in a Firm )

·         BUS 401 Week 1 Discussion 2 ( Financial Statements )

·         BUS 401 Week 1 Quiz

·         BUS 401 Week 2 Assignment ( Teaching Net Present Value (NPV) and Future Value (FV) )

·         BUS 401 Week 2 Discussion 1 ( Dreams Do Come True )

·         BUS 401 Week 2 Discussion 2 ( Investing in Bonds )

·         BUS 401 Week 2 Journal ( Present and Future Values, and Expected Returns )

·         BUS 401 Week 2 Quiz

·         BUS 401 Week 3 Assignment ( Return on Investment Education Funding )

·         BUS 401 Week 3 Discussion 1 ( Cash Flows From Working )

·         BUS 401 Week 3 Discussion 2 ( Capital Budgeting )

·         BUS 401 Week 3 Quiz

·         BUS 401 Week 4 Assignment ( Identifying and Managing Risk )

·         BUS 401 Week 4 Discussion 1 ( Interviewing Peter Lynch )

·         BUS 401 Week 4 Discussion 2 ( Cost of Capital )

·         BUS 401 Week 4 Journal ( Risk and Return )

·         BUS 401 Week 4 Quiz

·         BUS 401 Week 5 Assignment ( Evaluation of Corporate Performance )

·         BUS 401 Week 5 Discussion 1 ( Ratio Analysis )

·         BUS 401 Week 5 Discussion 2 ( Applying Ratios to a Business )

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