What is the amount of the risk premium on zelo stock

Question

Question 1. Zelo, Inc. stock has a beta of 1.23. The risk-free rate of return is 4.5% and the market rate of return is 10%. What is the amount of the risk premium on Zelo stock?

• 4.47%
• 5.50%
• 5.54%
• 6.77%
• 12.30%

Question 2. You are comparing stock A to stock B. Given the following information, which one of these two stocks should you prefer and why?

• Stock A; because it has an expected return of 7% and appears to be more risky.
• Stock A; because it has a higher expected return and appears to be less risky than stock B.
• Stock A; because it has a slightly lower expected return but appears to be significantly less risky than stock B.
• Stock B; because it has a higher expected return and appears to be just slightly more risky than stock A.
• Stock B; because it has a higher expected return and appears to be less risky than stock A.

Question 3. The opportunity set of portfolios is:

• all possible return combinations of those securities.
• all possible risk combinations of those securities.
• all possible risk-return combinations of those securities.
• the best or highest risk-return combination.
• the lowest risk-return combination.

Question 4. When stocks with the same expected return are combined into a portfolio:

• the expected return of the portfolio is less than the weighted average expected return of the stocks.
• the expected return of the portfolio is greater than the weighted average expected return of the stocks.
• the expected return of the portfolio is equal to the weighted average expected return of the stocks.
• there is no relationship between the expected return of the portfolio and the expected return of the stocks.
• None of the above.

Question 5. What is the expected return on a portfolio which is invested 20% in stock A, 50% in stock B, and 30% in stock C?

• 7.40%
• 8.25%
• 8.33%
• 9.45%
• 9.50%

Question 6. The constant dividend growth model is:

• generally used in practice because most stocks have a constant growth rate.
• generally used in practice because the historical growth rate of most stocks is constant.
• generally not used in practice because most stocks grow at a non constant rate.
• generally not used in practice because the constant growth rate is usually higher than the required rate of return.
• based on the assumption Dow 30 represent a good estimate of the market index.

Question 7. Nu-Tek, Inc. is expecting a period of intense growth and has decided to retain more of its earnings to help finance that growth. As a result it is going to reduce its annual dividend by 10% a year for the next three years. After that, it will maintain a constant dividend of $.70 a share. Last month, the company paid $1.80 per share. What is the value of this stock if the required rate of return is 13%?

• $6.79
• $7.22
• $8.22
• $8.87
• $9.01

Question 8. Last week, Railway Cabooses paid its annual dividend of $1.20 per share. The company has been reducing the dividends by 10% each year. How much are you willing to pay to purchase stock in this company if your required rate of return is 14%? (Points: 3)

• $4.50
• $7.71
• $10.80
• $15.60
• $27.00

Question 9. One basis point is equal to:

• .01%.
• .10%.
• 1.0%.
• 10%.
• 100%.

Question 10. Beaksley, Inc. is a very cyclical type of business which is reflected in its dividend policy. The firm pays a $2.00 a share dividend every other year. The last dividend was paid last year. Five years from now, the company is repurchasing all of the outstanding shares at a price of $50 a share. At an 8% rate of return, what is this stock worth today?

• $34.03
• $37.21
• $43.78
• $48.09
• $53.18