Exam 3 practice problems

Question 1

Components of the CAPM include

Answer 1

the rate on a risk free security

Question 2

A beta coefficient for a risky stock is

Answer 2

greater than 1

Question 3

t/f A beta of 1 indicates that the stock’s price is stable

Answer 3

False

Question 4

t/f The numerical value of a stocks beta tends to be stable over time

Answer 4

False

Question 5

t/f Increases in income taxes reduce a firms operating income

Answer 5

False

Question 6

Current liabilities include

Answer 6

Accrued interest payable

Question 7

Liabilities equal…

Answer 7

Assets minus equity

Question 8

t/f With straight line depreciation, the book value of the asset is reduced by the same amount each year

Answer 8

True

Question 9

t/f Retained earnings are part of the stockholders equity in a corporation

Answer 9

True

Question 10

t/f Additional paid in capital is a current asset

Answer 10

False

Question 11

t/f If a firm has retained earnings, it has an equal amount of cash

Answer 11

False

Question 12

The paying of a cash dividend causes the firms

Answer 12

assets and equity to decrease

Question 13

t/f If a firm sells inventory at cost for cash, its total assets rise

Answer 13

False

Question 14

A company may pay
a regular quarterly cash dividend
stock dividends
no dividends

Answer 14

All three

Question 15

If the valuation of a stock is $20 and it currently sells for $25 then

Answer 15

the stock is overvalued and the investor should establish a short position

Question 16

t/f The value of a stock depends in part on future dividends and investors required return

Answer 16

True

Question 17

t/f The return on an investment in stock depends on both dividends and capital gains

Answer 17

True

Question 18

When risk analysis is introduced into the dividend growth model, the required rate of return considers

Answer 18

The firms beta coefficient

Question 19

The value of a stock should decline if

Answer 19

The firms beta rises