1. If firm receives a cash flow from an investment that will increase by 10 percent annually for an infinite number of years. This cash flow stream is called
a. an annuity due.
b. a growing perpetuity.
c. an ordinary annuity.
d. a growing annuity.
2. Trevor Smith wants to have a million dollars at retirement, which is 15 years away. He already has $200,000 in an IRA earning 8 percent annually. How much does he need to save each year, beginning at the end of this year to reach his target? Assume he could earn 8 percent on any investment he makes. (Round to the nearest dollar.)
a. $13,464
b. $14,273
c. $10,900
d. $16,110
3. If you were to compare the returns of an individual stock to a market index, select the answer below that is most true.
a. The returns of the individual stock will show more variability than those of the market index.
b. The returns of the individual stock will show less variability than those of the market index.
c. The returns of the individual stock will show the same level of variability than those of the market index, if they have the same beta.
d. None of the above.
4. A portfolio with a level of systematic risk the same as that of the market has a beta that is
a. equal to zero.
b. equal to one.
c. less than the beta of the risk-free asset.
d. less than zero.
5. Which one of the following statements is NOT true about common stock?
a. Common-stock holders have the right to vote on the selection of the board of directors for the firm.
b. Common stock is considered to have no fixed maturity.
c. Owners of common stock are guaranteed dividend payments by the firm.
d. Common-stock holders have limited liability.