Question1. The security market line
a. is stated as the slope of a line relating an individual security's return to returns of other securities in that firm's primary industry.
b. offers a picture of the risk-return tradeoff required by diversified investors considering various risky assets.
c. has as its slope the beta of security
d. is determined by prevailing level of risk-free interest rates minus risk premium
Question2. The term structure of interest rates is the pattern of the interest rate yields for debt securities which are similar in all respects apart from for differences in
a. Tax status
b. Liquidity
c. Risk of default
d. Maturity
Question3. The risk-free rate of return is composed of which of following elements:
a. Risk premium and inflation
b. Cost of capital and risk premium
c. Real rate of return and risk premium
d. Real rate of return and inflation
Question4. Evaluate the risk premium for stock of Omega Tools when the risk-free rate is 6%, the expected market return is 12%, and Omega's stock has beta of .8.
a. 10.8%
b. 4.8%
c. 48.0%
d. 16.8%
Question5. Zero coupon bonds are the instance of
a. original issue deep discount bonds
b. extendible notes
c. convertible bonds
d. floating rate notes