9.___ __ Combining assets that are not perfectly correlated does affect both the expected return of the portfolio as well as the risk of the portfolio.
10.__ ___ Bond rating agencies include the analysis of financial ratios in arriving at corporate bond ratings. Multiple choice( 4 points each)
Multiple Choice 11. In the context of the Capital Asset Pricing Model( CAPM) the relevant measure of risk is
12. According to the Capital Asset Pricing Model( CAPM) a well diversified portfolio ' s rate of return is a function of
13. The premise of behavioral finance is that 14. The efficient market hypothesis ____________.
15. The CAPM is not testable unless 16. The duration of a bond is a function of the bond ' s A. coupon rate. B. yield to maturity. C. time to maturity. D. All of these are correct. E. None of these is correct.
17. Treasury STRIPS are
Problems / Essay: Problem 1( 15 points): Be sure to show your work for computations. Use CAPM methodology to compute the following:
Problem 2( 15 points) High Tech Chip Company paid a dividend last year of $ 2.50. The expected ROE for next year is 12.5 %. An appropriate required return on the stock is 11 %. If the firm has a plowback ratio of 60 %, the dividend in the coming year should be: g =. 125 X. 6 = 7.5 %; $ 2.50( 1.075) = $ 2.69