40. The value of a negative beta asset is____A) The higher expected re

QUESTION

40. The value of a negative beta asset is____A) The higher expected return of this assetB) Non-existent because negative beta assets are theoretically impossibleC) The risk reducing property when added to a portfolioD) That it is a necessary component to have a fully diversified portfolioE)
40. The value of a negative beta asset is ____ A) The higher expected return of this asset B) Non-existent because negative beta assets are theoretically impossible C) The risk reducing property when added to a portfolio D) That it is a necessary component to have a fully diversified portfolio E) None of the above 41. As the number of securities in a portfolio increases, the amount of systematic risk ____ A) Remains constant B) Decreases C) Increases D) Changes up and down 42. Utilizing the security market line (SML), an investor owning a stock with a beta of -2 would expect the stocks return to ____ in a market that was expected to decline 15%. ____ A) Rise or fall an indeterminate amount B) Fall by 3% C) Fall by 30% D) Rise by 13% E) Rise by 30% 43. An increase in the risk-adjusted discount rate (RADR) for a risky project will result in ____ A) No change to the NPV B) An increase in the IRR C) An increase in the NPV D) A decrease in the NPV unsure 44. XYZ Inc. has an overall (composite) WACC of 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk. XYZ evaluates low-risk projects with a WACC of 8%, average projects at 10%, and high-risk projects at 12%. The company is considering the following

rojects: Project Risk Expected Return A High 15% B Average 12% C High 11% D Low 9% E Low 6% Which set of projects would maximize shareholder wealth? ____ A) A, B, and C B) A, B, and D C) A, B, C, and D D) A, B, C, D, and E 45. A firm is considering a new project whose risk is greater than the risk of the firms average project, based on all methods for assessing risk. In evaluating this project, it would be reasonable for management to do which of the following? ____ A) Increase the estimated IRR of the project to reflect its greater risk B) Reject the project, since its acceptance would increase the firms risk C) Ignore the risk differential if the project would amount to only a small fraction of the firms total assets D) Increase the cost of capital used to evaluate the project to reflect the projects higher-than-average risk

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