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74. U.S. Bancorp holds a press conference to announce a positive news event that was
unexpected to the market. As soon as the announcement is made, the stock price increases $8
per share but then over the next hour the price falls resulting in a net increase of only $4. Given
this information which of the following statements is correct?
75. Which of the following is incorrect?
76. Which of the following is correct?
77. Which of the following statements is incorrect?
78. Stock A has a required return of 19 percent. Stock B has a required return of 11 percent.
Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the
two stocks?
79. Stock A has a required return of 19 percent. Stock B has a required return of 11 percent.
Assume a risk-free rate of 4.75 percent. By how much does Stock A's risk premium exceed the
risk premium of Stock B?
14.25 - 6.25 = 8.00
80. Stock A has a required return of 12 percent. Stock B has a required return of 15 percent.
Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the
two stocks?
81. IBM's stock price is $22, it is expected to pay a $2 dividend, and analysts expect the firm
to grow at 10 percent per year for the next five years. TDI's stock price is $10, it is expected to
pay a $1 dividend, and analysts expect the firm to grow at 12 percent per year for the next five
years. What is the difference in the two firms' required rate of returns?
82. Which of the following statements is correct?
83. IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following
statements must be correct?
84. You hold a diversified portfolio consisting of $1,000 investment in each of 10 different
stocks. The portfolio has a beta of 0.8. You have decided to sell one of your stocks that has a
beta equal to 1.1 for $1,000. You will purchase $1,000 of a new stock with a beta of 2.5. After
these two transactions (sell and buy), what will be the beta of the new portfolio?
85. A stock has an expected return of 14.5 percent, the risk-free rate is 4 percent and the
return on the market is 11 percent. What is this stock's beta?
86. In 2000, the S&P 500 Index earned 11 percent while the T-bill yield was 4.4 percent.
Given this information, which of the following statements is correct with respect to the market
risk premium?
87. How might a small market risk premium impact people's desire to buy stocks?
88. How might a large market risk premium impact people's desire to buy stocks?
89. Consider an asset that provides the same return no matter what economic state occurs.
What would be the standard deviation of this asset?
90. Whenever a set of stock prices go unnaturally high and subsequently crash down, the
market experiences what we call a(n):
91. All of the following are necessary conditions for an efficient market EXCEPT:
92. Which of the following is most correct?
93. Which of the following statements is incorrect?
94. Which of the following statements is correct?
