This document contains flashcards for FIN 8026 Week 5. There are 33 terms and definitions related to finance topics such as stock valuation models, stock transactions, mutual funds, and portfolio theory. For each term there are multiple choice questions to test understanding. The flashcards cover concepts like the dividend growth model, stock splits, risk-adjusted required rates of return, and the efficient market hypothesis.

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Flashcards Learn Write Spell Test PLAY Match Gravity Created by stozy8026 Terms in this set (33) According to the
dividend-growth model,the valuation of common stock depends on: 1. the firm's dividends 2. investors' required rate of
return 3. the prior year's dividends A. 1 and 2 B. 1 and 3 C. 2 and 3 D. All of the above A. 1 and 2 Which of the following
occurs whena stock is split two-for one? A. the price of the stock decreases B. the firm's assets decrease C. the firm's
liabilities decrease D. the firm's equity decreases A. the price of the stock decreases Dividend reinvestment plans offer
which advantages? 1. deferment of federal income taxes 2. a convenient means to accumulate taxes 3. dollar cost
averaging A. 1 and 2 B. 1 and 3 C. 2 and 3 D. all three C. 2 and 3 The risk-adjusted required rate of return includes: 1.
the firm's earnings 2. the firm's beta coefficient 3. the treasury bill rate (i.e. the risk free rate) A. 1 and 2 B. 1 and 3 C. 2
and 3 D. all of the above C. 2 and 3 Stock dividends cause: A. the price of a share of stock to
Fin 403 Week 5 Dq 1 By Gour29
rise B. the price of a share of stock to fall C. the value of the firm to rise D. the value of the firm to fall B. The price of a
share of stock to fall Greshak corp has common stock outstanding that recently paid a dividend of $2.40. If the expected
long-term growth rate for this stock is 5.0 percent,and if investors require a 13.0 percent rate of return,what is the price
of Greshak's stock (2.40 / 1.05)/ .12 -.05 = $31.50 Greshak Corp forecasts its dividends to be $2.60 per share next
year,$3.20 per share in two years,and $3.80 per share in three years. After the third year,dividends are anticipated to
grow at a constant sustainable rate of 5.0% per year. If Greshak's cost of capital is 15.0% and irs applicable tax rate is
35.0%,what is the estimated share price for the company's common equity? $33.41 Use of P/E ratios will not produce
superior investment results according to the: A. weak form of the efficient market hypothesis B. semi-strong form of the
efficient market hypothesis C. strong form of the efficient market hypothesis D. all forms of the efficient market
hypothesis B. Semi-strong form of the efficient market hypothesis Which of the following is true? A. Mutual funds report
returns before adjusting for taxes B. 12b-1 fees exceed a fund's NAV C. Small cap funds cannot have load fees D.
Exchange-traded funds exchange their portfolios A. Mutual funds report returns before adjusting
Fin 403 Week 5 Flashcards
for taxes A style portfolio manager offers two things: A. investment skill and market timing B. the specific style
comibined with a low beta C. a high beta and investment timing D. investment skill combined with style D. investment
skill combined with the style If an investors excess return is negative,A. the realized return was less that the return
earned by the market B. the required return exceeded the realized return C. the investor consturcted a poorly diversified
portfolio D. the investor's portfolio had excessive diversification B. the required rate of return exceeded the realized
return A mutual fund with a beta coefficient of 0.8: A. invests in an index of the stock market B. invests only in debt
instruments C. has less systematic risk D. has less unsystematic risk C. has less systematic risk Closed-end investment
companies: 1. have a fixed capital structure 2. issue new stock whenever an individual buys shares 3. may sell for a
premium over net asset value 4. must sell for their net asset value A. 1 and 3 B. 1 and 4 C. 2 and 3 D. 2 and 4 A. 1 and 3
A real estate investment trust: A. pays federal income taxes B. retains all of its earnings C. invests in mortgages or rental
properties D. cannot use debt financing C. Inbests in mortgages or rental properties The net asset value value of a
closed-end investment company increases with: A. higher stock prices B. lower stock
Fin 403 Week 5 On Tildee
prices C. larger number of shares D. increased liabilities A. higher stock prices You invest in a mutual fund that earned
12.0% during the most recent year. The overall market earned 13.0% during that same period. Assuming the mutual fund
has a beta of .80 and that the risk free rate is 3.0%,did the mutual fund earn positive alpha? A. No,the mutual fund
earned a negative alpha of 1.6% B. Yes,the mutual fund earned a positive alpha of 1.0% C. Yes,the mutual fund earned a
positive alpha of 2.0% D. No,the mutual fund earned a negative alpha of 2.4% B. Yes,the mutual fund earned a positive
alpha of 1.0% You are provided the following information related to Walsh Corp. and its two employee retirement
accounts: Current market price of common stock $28 Standard dev. for common stock 21% Beta of common stock 1.25
Portfolio A current market value $2,500,8026 Portfolio A annual return 13.0% Portfolio A standard deviation 16.0%
Portfolio A beta 0.70 Portfolio B current market value $3,000,8026 Portfolio B annual return 14% Portfolio B standard
deviation 20% Portfolio B beta 1.4 Equity Risk premium 6% Long-term federal government bond rate 4% S&P annual
return 10% What is the Sharpe Measure/Ratio for Walsh Retirement Portfolio A? Answer: .8026 Unsystematic risk _______
A. is increased through diversification B. is reduced when market forces fluctuate less C. is affected by the nature of how
a firm finances its operations D. increases during periods of volatile interest
Uop Fin 403 Week 5 Summary
rates C. is affected by the nature of how a firm finances its operations According to the arbitrage pricing theory,the
return on a stock: A. is not related to the expected return on the stock B. depends on the stock's responsiveness to
unexpected changes C. is reduced through the construction of diversified portfolios D. equals the market return if the
expected rate of inflation is realized B. depends on the stock's responsiveness to unexpected changes An efficient
portfolio: 1. maximizes risk for a given return 2. minimizes risk for a given return 3. maximizes return for a given level of
risk 4. minimizes return for a given level of risk A. 1 and 3 B. 1 and 4 C. 2 and 3 D. 2 and 4 C. 2 and 3 Sources of
unsystematic risk include: 1. the firm's financing decisions 2. the firm's operation 3. fluctuating market prices A. 1 and 2
B. 1 and 3 C. 2 and 3 D all of the above A. 1 and 2 The security market line does not ______ : A. indicate the relationship
between risk and return B. relate the market return and beta to a stock's return C. identify the optimal portfolio for the
investor D. use beta coefficients as a measure of risk C. identify the optimal portfolio for the investor The efficient
frontier in portfolio theory: A. indicates the highest return for a given risk B. illustrates the optimal trade-off between
long and short-term

6. Fin 403 Week 5 Dq 1 (Uop Course) By Reshma504
capital gains C. quantifies systematic and unsystematic risk D. identifies the optimal portfolio for the investor A. indicates
the highest return for a given risk You investment portfolio is currently comprised of the following: Mark Val Exp Ret Std
Dev Beta Stock A $250,8026 10% 5.6% .80 Stock B $100,8026 12% 6.8% 1.10 Stock C $300,8026 14% 8.5% .90 Stock D
$350,8026 9.8% 5.5% 1.25 Based on the above,what is the portfolio's expected return? A 8026 25% * 10% = 2.5% B 8026
12% * 12% = 1.2% C 8026 30% * 14% = 4.2% D 8026 35% * 9.8% = 3.43% 1,000,8026 100% 11.33% Greshak Corp. is
attempting to estimate the cost of its common equity. Research indicates that the current risk free rate (based on current
U.S. Treasury securities) is 3.50%,Greshak's beta is 1.40,the expected return on the equity market next year is 10%,and
the current equity risk premium is 6.25%. Based on this information,what is the estimated cost of Greshak's equity?
12.25% You anticipate purchasing a new home. Based on your current financial position,the most you can afford on a
monthly basis is $2,8026 (ignoring taxes and fees). You locate a new home in a desirable area with a asking price of
$350,8026 and you bank offers you a thirty-year mortgage with an annual rate of 7.5%. Assuming you must offer full
price for the home (due to the number of potential purchasers in the market),will this transaction fit into your budget?
Fin 403 Week 5 Summary (Uop Course)
You must solve for the required monthly payment given above fact pattern using a financial calculator and show ALL
work (including keystrokes). Yes,the total monthly cost will be $2447.25 which is less that your budget limit. You are hurt
in an accident at work and your lawyer wins you a $1,000,8026 settlement to be distributed as follows: $100,8026
immediate payment $50,8026 a year for twelve years (due at the end of each year) $300,8026 lump sum payment to be
paid in twelve years If the lawyers fee is $40,8026 (due immediately),what is the present value of the settlement if your
opportunity cost of money is 8%? You must solve for the "exact" answer using the financial calculator and show ALL work
( including calc keystrokes) ... Which of the following is not illustrative of a tax-sheltered retirement plan? A. Keogh
account B. IRAs C. 401k plans D. Life insurance D. life insurance The traditional IRA is A. a tax deferred retirement
account B. a non tax deferred retirement account C. a means to generate tax free income D. a means to increase current
income A. a tax deferred retirement account The weak form of the efficient hypothesis implies... A. securities prices are
randomly determined B. studying past price behavior will lead to inferior investment decisions C. past securities prices
predict future prices D. studying past price behavior does not lead to superior investment decisions D. Studying past
price behavior does not lead to superior investment
Fin 403 Week 5 Summary
decisions which is the largest if the interest rate is 7 percent? A. $8026 compounded for three years B. future value of a
$8026 annuity for three years C. the present value of $8026 after three years D. the present value of a $8026 annuity B.
the future value of a $8026 annuity for three years The present value of an annuity is: 1. larger the greater the rate of
interest 2. smaller the greater rate of interest 3. larger as the number of years increases 4. smaller as the number of
years increases A. 1 and 3 B. 1 and 4 C. 2 and 3 D. 2 and 4 C. 2 and 3 Discounting: A. expresses the present in the future
B. brings the future back to the present C. is synonymous with compounding D. depends on the rate of interest B. brings
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