The Road Ready Riding, Inc will use an estimated 24,000 wheel assemblies in its manufacturing process next year. The carrying cost of the wheel assembly inventory is $1.80 per wheel and the ordering cost per order is $50. What is Road Ready’s economic ordering quantity of wheel assemblies? A) 785 B) 997 C) 1,155 D) […]
Which of the following is not a widely-recognized problem with CAPM? A) The model is complex and poorly understood by many finance professionals. B) The model does not accurately explain stock returns over time. C) Other factors besides market risk may influence security returns. D) Beta values for any stock often change over time. E) […]
The Security Market Line has ________. A) a positive slope B) a negative slope C) no slope D) a beta of 1.0 ANSWER Answer: A
In the basic EOQ model, the optimal inventory level is the point at which A) total revenue is maximized. B) carrying costs are minimized. C) ordering costs are minimized. D) total cost is minimized. ANSWER D
Given an expected market return of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4.0%, what is the expected return for Benson Industries? A) 13.0% B) 10.0% C) 9.0% D) 4.0% ANSWER Answer: B Explanation: B) The equation for the SML is E(ri) = rf + (rf + […]
Beta is ________. A) a measure of systematic risk B) a measure of nondiversifiable risk C) the appropriate measure of risk for a well-diversified portfolio D) All of the above ANSWER Answer: D
John has a portfolio consisting of equal proportions of 5 securities. Susan also has a portfolio of the same five securities but the weights of each security are not equal. Which of the statements below MUST be true? A) Because Susan has an unequal distribution of securities, her portfolio beta must be less than John’s. […]
Which of the following assumptions about the Security Market Line is NOT true? A) There is a basic reward for waiting: the risk-free rate. B) The greater the risk, the greater the expected return. C) There is an inconsistent trade-off between risk and reward at all levels of risk. D) All of the above statements […]
The beta of a portfolio is the weighted average of the betas of all of the assets in the portfolio. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Analysts state that the required return from Plummet Soft Drinks stock is 25%, and the returns from Treasury bills and the market portfolio are 4% and 20%, respectively. What is Plummet’s beta? A) 0.79 B) 1.00 C) 0.05 D) 1.31 E) 1.13 ANSWER D
