5.Which of the following is a difference between primary and secondary capital markets?

Select exactly 1 answers from the following:

A. Primary markets are where stocks trade while secondary markets are where bonds trade.

B. Both primary and secondary markets relate to where stocks and bonds trade after their initial offering.

C. Secondary capital markets relate to the sale of new issues of bonds, preferred, and common stock, while primary capital markets are where securities trade after their initial offering.

D. Primary capital markets relate to the sale of new issues of bonds, preferred, and common stock, while secondary capital markets are where securities trade after their initial offering.

6.A firm is expected to have four years of growth with a retention ratio of 100 percent. Afterwards the firm's dividends are expected to grow 4 percent annually, and the dividend payout ratio will be set at 50 percent. If earnings per share (EPS) = $2.4 in year 5 and the required return on equity is 10 percent, what is the stock's value today?

Select exactly 1 answers from the following:

A. $20.00.

B. $13.66.

C. $30.00.

D. $40.23.

7.The earnings multiplier model, derived from the dividend discount model, expresses a stock's P/E ratio (P0/E1) as the:

Select exactly 1 answers from the following:

A. expected dividend in one year divided by the difference between the required return on equity and the expected dividend growth rate.

B. expected dividend payout ratio divided by the difference between the required return on equity and the expected dividend growth rate.

C. expected dividend payout ratio divided by the sum of the expected dividend growth rate and the required return on equity.

D. dividend yield plus the expected dividend growth rate.

8.Which of the following statements about return objectives is FALSE?

Select exactly 1 answers from the following:

A. To achieve the capital appreciation objective, the nominal rate of return must exceed the rate of inflation.

B. The total return objective is riskier than the current income objective.

C. To achieve the capital preservation objective, the nominal rate of return must exceed the inflation rate.

D. The total return objective is less risky than the capital appreciation objective.

9.An analyst is currently considering a portfolio consisting of two stocks. The first stock, Remba Co., has an expected return of 12 percent and a standard deviation of 16 percent. The second stock, Labs, Inc, has an expected return of 18 percent and a standard deviation of 25 percent. The correlation of returns between the two securities is 0.25.

If the analyst forms a portfolio with 30 percent in Remba and 70 percent in Labs, what is the portfolio's expected return?

Select exactly 1 answers from the following:

A. 15.0%.

B. 17.3%.

C. 16.2%.

D. 21.5%.

10.Which of the following statements regarding the Markowitz model of portfolio theory is FALSE? The model assumes investors:

Select exactly 1 answers from the following:

A. evaluate investment opportunities as a probability distribution of expected returns over some time period.

B. view the mean of the distribution of potential outcomes as the expected risk of an investment.

C. estimate a portfolio's risk on the basis of the variability of expected returns.

D. prefer higher returns to lower returns if the expected risk is the same, and less risk to more risk if the expected return is the same.

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