**Question description**

The beta of Middle Earth Inc. stock is 1.6, and the risk-free rate of return is 8 percent. If the expected return on the stock market is 15 percent, then what is the expected rate of return on Middle Earth Inc. stock?

A. 24.0%

B. 32.0%

C. 12.8%

D. 11.2%

E. 19.2%

Gimli purchased a share of stock for $22 one year ago. During the time he owned the stock it paid $.97 in dividends. He just sold the stock for $25.30, what was his holding period of return?

A. 15.0%

B. 19.4%

C. 4.4%

D. 16.9%

E. 3.8%

Security analysts have evaluated Orc Industries and determined that there is a 15% chance that the firm will generate earnings per share of $2.40 next year; a 60% chance that the firm will generate earnings of $3.10 per share; and a 25% chance that the firm will generate earnings of $3.80 per share. What are the expected earnings per share for Orc Industries? (Round to the nearest $.01)

A. $2.81

B. $1.86

C. $2.91

D. $3.17

E. $3.10

Question 7

You are analyzing a project and estimate that it has the following potential return scenarios:

Return Probability

12% 15%

10% 50%

7% 35%

What is the expected rate of return on this project? (rounded to the nearest tenth of a percent)

A. 7.5%

B. 9.3%

C. some other amount.

D. 10%

E. 9.7%

What is the expected rate of return of Tolkien Industries stock given the risk free rate of return is 3% and the market rate of return is 11%. The company has a historical beta of .80.

A. 6.4%

B. 14%

C. 2.4%

D. 8.8%

E. 9.4%

Dwarf Brothers stock was priced at $15 per share two years ago when purchased. It now sells for $18 per share. In the last year the stock paid $1.00 per share in dividends. What was the total return for owning Dwarf Brothers stock? (Round to the nearest percent).

A. 27%

B. 20%

C. 22%

D. 7%

E. 33%

Which stock has the greater variation in price? Stock A, has a standard deviation of 4; Stock B, which has a standard deviation of 6; Stock C which has a standard deviation of 5.

A. Stock C

B. Stock B

C. Can’t tell with the information given.

D. Stock A

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