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UNIVERSITY OF MINDANAO TAGUM COLLEGE

SECOND EXAMINATION
FINANCE 33
MARIA TERESA A. OZOA, CPA

TEST I: MULTIPLE CHOICE THEORY (2 points)


Instruction: Write the letter that corresponds to your answer.

1. A model based on the proposition that any stocks required rate of return is equal to the risk free rate plus a
risk premium that reflects only the risk remaining after diversification.
a. Standard deviation c. Coefficient of Variation
b. Capital Asset Pricing Model d. Beta

2. A part of a securitys risk caused by factors unique to a particular firm.


a. Diversifiable risk c. Undiversifiable risk
b. Default risk d. Liquidity risk

3. A measure of the sensitivity of a securitys return relative to the returns of a broad based market portfolio
securities.
a. Risk c. Rate of return
b. Probability d. Beta

4. The return required on a security having no systematic risk and is generally measured by the yield on short
term treasury securities.
a. Market rate c. Company Rate
b. Risk free rate d. Premium rate

5. It represents the linear relationship between a securitys required rate of return and its risk as measured by the
beta.
a. Linear regression analysis c. Security market line
b. Decision tree analysis d. Systematic analysis

TEST II: TRUE OR FALSE (1 POINT ECH)


Instruction: Write TRUE if the statement is correct and FALSE if it is incorrect.

1. Diversifiable risk is the part of a securitys risk associated with random events that cannot be eliminated by
diversification. T
2. A high-beta stock is less volatile than an average stock. F
3. An average stock has b = 1.5. F
4. Within the capital asset pricing model (CAPM) the risk free rate is usually higher than the return in the market. T
5. An average risk stock is defined as one that tends to move up ad down in step with the general market as measured
by some index. F

TEST III: MULTILPE CHOICE PROBLEM (5 POINTS EACH)


Instruction: Write the letter that corresponds to your answer and kindly present your solution in an acceptable format.

1. Oak Enterprises has a beta of 1.2, the market return is 11%, and the T-bill rate is 4%. What is their expected
required return of common equity?
A. between 11% and 12% C. between 12% and 13%
C. between 7% and 8% D. between 4% and 5%

ITEMS 2 - 3
The Push Investment Funds, in which you plan to invest some money has total capital of P 750,000,000 invested in six
stocks:

STOCK INVESTMENT STOCKS BETA COEFFICIENT


Z P 200 million 0.5
Y 160 million 2.0
X 125 million 2.0
W 125 million 1.0
V 100 million 1.0
U 40 million 1.25
2. What is the companys beta?
A. 0.65 C. 1.15
B. 1.06 D. 1.26

3. Assume that the risk-free rate is 6% and the market risk premium is 5%. What is the holding companys required
rate of return?
A. 9.25% C. 11.75%
B. 11.3% D. 12.3%

4. If the risk free rate is 10% and the expected return on the market portfolio is 16%, a security with a beta of 1.5
should have a required rate of return using the CAPM of
A. 10% C. 19%
B. 16% D. 26%

5. An equity share has a beta of 1.05, the expected return on the market is 11%, and the risk free is 5.2%. What
must the beta of this equity share be?
mali

6. An equity share has an expected return of 10.2%, the risk fee rate is 4.5%and the market risk premium is 8.5%.
What must the beta of this equity share be?
Beta = 0.6705

7. An equity share has an expected return of 13.5%, its beta is 1.17 and the risk free rate is 5.5%. What must the
expected return on the market be?
= 12.34%
TEST IV:
1. What is the new VISION, MISSION AND GOALS of the University of Mindanao Tagum College (UMTC)? (20
points)