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Comm 308 Week 2 Practice Question Paper

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COMM 308 TEST #2 – PRACTICE QUESTIONS Correct answers are marked in white. Select al (ctrl+A)l and change font color to black to reveal them 1. You are considering the following two mutually exclusive projects. The required rate of return is 14.6 percent for project A and 13.8 percent for project B. Which project should you accept and why? project A; because it has the higher required rate of return project A; because its NPV is about $4,900 more than the NPV of project B X project B; because it has the largest total cash inflow project B; because it has the largest cash inflow in year one project B; because it has the lower required return 2. A project has average net income of $5,900 a year over its …show more content…

You recently purchased a stock that is expected to earn 30 percent in a booming economy, 9 percent in a normal economy, and lose 33 percent in a recessionary economy. There is a 5 percent probability of a boom and a 75 percent chance of a normal economy. What is your expected rate of return on this stock? -3.40 percent -2.25 percent 1.65 percent X 2.60 percent 3.50 percent $8,900 11. What is the variance of the returns on a portfolio that is invested 60 percent in stock S and 40 percent in stock T? .000017 .000023 X .000118 .000136 .000161 12. Four months ago, you purchased 1,500 shares of Lakeside Bank stock for $11.20 a share. You have received dividend payments equal to $0.25 a share. Today, you sold all of your shares for $8.60 a share. What is your total dollar return on this investment? -$3,900 -$3,525 X -$3,150 -$2,950 -$2,875 13. Jerilu Markets has a beta of 1.09. The risk-free rate of return is 2.75 percent and the market rate of return is 9.80 percent. What is the risk premium on this stock? 6.47 percent 7.03 percent 7.68 percent X 8.99 percent 9.80 percent 14. The rate of return on the common stock of Lancaster Woolens is expected to be 21 percent in a boom economy, 11 percent in a normal economy, and only 3 percent in a recessionary economy. The probabilities of these economic states are 10 percent for a boom, 70

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