# The capital asset pricing model

1. The capital asset pricing model (Points : 1)

provides a risk return trade off in which risk is measured in terms of the market volatility.

provides a risk return trade off in which risk is measured in terms of beta.

measures risk as the coefficient of variation between security and market rates of return.

depicts the total risk of a security.

2. At what rate must $500 be compounded annually for it to grow to $1,079.46 in 10 years? (Points : 1)

6 percent

5 percent

7 percent

8 percent

3. Positive Tronics Industries preferred stock has a par value of $100 and pays a dividend of $6.00 per share. It presently sells for $87 per share. What do investors require as a rate of return on this stock? Round off to the nearest .10%. (Points : 1)

14.5%

9.3%

6.9%

6.0%

4. Butler Corp paid a dividend today of $5 per share. The dividend is expected to grow at a constant rate of 6.5% per year. If Butler Corp stock is selling for $50.00 per share, the stockholders expected rate of return is (Points : 1)

11.50%.

13.56%.

15.49%.

16.50%.

5. Emery Company just paid a dividend yesterday of $2.25 per share. The company s stock is currently selling for $60 per share, and the required rate of return on Emery Company stock is 16%. What is the growth rate expected for Emery Company dividends assuming constant growth? (Points : 1)

9.47%

9.89%

10.87%

11.81%

6. What is the value of a preferred stock that pays a $4.50 dividend to an investor with a required rate of return of 10%? (Points : 1)

$22.22

$27.83

$45

$55.50

7. Bell Corp. has a preferred stock that pays a dividend of $2.40. If you are willing to purchase the stock at $11, what is your required rate of return (round your answer to the nearest .1% and assume that there are no transaction costs)? (Points : 1)

21.8%

11.0%

9.1%

20.1%

8. What is the present value of $15,500 to be received 12 years from today? Assume a discount rate of 7.5% compounded annually and round to the nearest $1. (Points : 1)

$5,790

$6,508

$7,210

$9,010

9. Lily Co. paid a dividend of $5.25 on its common stock yesterday. The company s dividends are expected to grow at a constant rate of 8.5% indefinitely. The required rate of return on this stock is 15.5%. You observe a market price of $78.50 for the stock. Should you purchase this stock? (Points : 1)

No, the market price is above the intrinsic value of the stock.

Yes, the market price is below the intrinsic value of the stock.

No, the growth rate in dividends is too far below the required return.

Yes, but only if you can keep the stock for at least 5 years.

10. Assume that Brady Corp. has an issue of 18 year $1,000 par value bonds that pay 7% interest, annually. Further assume that today s required rate of return on these bonds is 5%. How much would these bonds sell for today? Round off to the nearest $1. (Points : 1)

$1,233.79

$1,201.32

$1,134.88

$1,032.56

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