Finance 301: PorterPractice Exam 34/9/08S.I.1. If $2,000 is invested and $2,375 is returned after one year, whatis the rate of return on this investment?a. 18.75%b. 15.79%c. 84%d. 16.5%2. Which of the following are true concerning investment risk?a. There are two types: standalone and portfoliob. It is related to the probability of earning a low or negative actual return.c. The greater the chance of lower than expected return, the higher the risk.d. A and B.e. All of the above3. A stock’s return has the following distribution:Demand Probability of Demand Rate of Return 4 DemandWeak 0.10 (-45%)Below Average 0.2 (-12%)Average 0.3 12%Above Average 0.25 20%Strong 0.15 70%Calculate the stocks expected return, standard deviation, and coefficient of variation.4. __________assumes investors do not like risk and therefore require higher rates of return to hold riskier securities.a. Risk premiumb. Risk aversionc. Correlationd. Stand alone risk5. The Capital Asset Pricing Model (CAPM) is a model that suggests that there is a Security Market Line that states that a stocks required return is equal to the risk free return + a risk premium that reflect the risk after diversification. How is this equation typically written?6. How is the beta actually calculated? (this is most common method, but certainly not the only one)7. You just won the lottery, and have decided to use $5,000,000 of your money to build a portfolio of investments. The portfolio consists of the following investments and their respective betas. Stock $ Invested BetaW$1,200,000 1.3X$2,500,000 0.8Y$350,000 1.45Z$500,000 (-0.2)A$450,000 1.75 The required rate of return on the market is 13% and the risk free rate is 5.5%. What is the portfolio’s required rate of return?8. Assume that the risk free rate is 6.5%, the expected return on the market is 12.5%. What is the required rate of return on a stock with a beta of 1.3?9. Calculate the beta on a stock who’s required rate of return is 15.85%, return on the market is 13.75% and risk free rate is 5.5%.10. The Market Risk Premium is 9%, the risk free rate is 7%. What is the expected return for the overall market? What is the required rate of return on a stock with a beta of 1.85?11. What is the % of ownership that would give you “total control” of the company. (as discussed in class)a. 75%b. 90%c. 99%d. 50%12. What is the % of ownership that would give you “effective control” of the company, (as discussed in class)a. 90%b. 75%c. 50%d. A percentage in the teens, 20’s or 30’s.13. What is the main idea of the dividend growth model? 14. What are the relevant formulas in the divided growth model?15. What are the two things that must be true in order for the dividend growth model to work?a. rs < g and g must be constant for at least 5 yearsb. rs > g and g must be constant foreverc. g must grow at a steady state forever and rs < gd. None of the above are correct16. Meyer Inc. is expected to pay a $1.35 per share dividend at the end of the year. The dividend is expected to have constant growth of 8.5% per year. The required rate of return on the stock is 12%. What is the stock’s value per share?17. A stock is expected to pay a dividend of $0.75 per share atthe end of the year. It should grow at a rate of 7% forever. The required rate of return is 12%. What is the stock’s expected price 3 years from today?18. A dividend of $3.45 was just paid, and the stock is expected to grow at a constant rate of 5.5%. The required rate of return is 14%. Calculate the expected dividend stream for the next three years, and the present values of the dividends. 19. What is the stock’s intrinsic value? 20. What is the expected dividend yield, capital gains yield, and total return during the first year?21. A company is expected to have supernormal growth of 35% for the next three years. They just paid a dividend of $1.55. After the supernormal growth period, the company is expected to grow at a steady state of 7%. The firms required rate of return is 15%, what is the firms intrinsic value today?22. Wiebold Inc. has encountered some trouble in their business, and they are expected to have a constant growth rate of -5.5%. They just paid a dividend of $4.50 and the required rate of return is 13%. What is the value of Wiebold Inc. stock? 23. What should you know about the Corporate Value Method?24. List the three firm multiples methods and the requirements of each.25. What two conditions hold when in market equilibrium (stock prices are stable, and there is no pressure to buy vs. sell).26. ___________is a hybrid security between bonds and equity which receives a fixed dividend that must be paid before dividends are paid to common stockholders. a. Common Stockb. Special Stockc. Exempt Stockd. Preferred Stock27. If preferred stock with an annual dividend of $8 sells for $85, what is the preferred stock’s expected