BUSM 201 FINAL Exam Questions With
Solutions
What is the most valuable investment given up if an alternative investment is chosen? an
opportunity cost
A cost that has already been paid, or the liability to pay has already been incurred, is a(n):
sunk cost.
The intercept point of the secur...
What is the most valuable investment given up if an alternative investment is chosen? an
opportunity cost
A cost that has already been paid, or the liability to pay has already been incurred, is a(n):
sunk cost.
The intercept point of the security market line is the rate of return which corresponds to which of
the following? the risk-free rate of return.
You are considering purchasing stock S. This stock has an expected return of 8 percent if the
economy booms and 3 percent if the economy goes into a recessionary period. How will the
overall expected rate of return on this stock behave? It will increase as the probability of a
boom economy increases.
Which of the following is an example of diversifiable risk? The employees of Textile, Inc.
just voted to go on strike.Textile, Inc. is an individual firm. The risk of an individual firm can be
diversified by forming a portfolio of stocks along with textile.
, BUSM 201 FINAL Exam Questions With
Solutions
Standard deviation measures what type of risk? total
The risk premium for an individual security is computed by: multiplying the security's
beta by the market risk premium
Systematic risk is measured by which of the following? beta
Which of the following is not a definition of required rate of return?
It is the risk free rate plus (+) the risk premium.
It is the return on an investment required by investors given the investment's risk.
It is the Sharpe ratio.
It is the compensation investors require for accepting risk. It is the Sharpe ratio.
What is the relationship between risk and correlation? Lower correlation leads to lower
risk
, BUSM 201 FINAL Exam Questions With
Solutions
Which is not a part of the build-up method for finding the required rate of return? large-
cap risk premium
According to the reading, what is risk? Risk is uncertainty.
The market value proportions of the firm's assets, financed via debt, common stock, and
preferred stock, are called the firm's ____________. capital structure weights
Which of the following is the cost incurred by the firm when new issues of stocks or bonds are
sold? flotation costs
The overall cost of capital for a retail store: reflects the return that investors require on the
total assets of the firm.
The pre-tax cost of debt for a firm: is equal to the yield to maturity on the outstanding
bonds of the firm
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