1. A beta coefficient reflects the response of a security’s return to:
-the risk-free rate.
-an unsystematic risk.
-a systematic risk
-the market rate of return.
-idiosyncratic risk.
2. A company has decided to produce a new product. The project requires an immediate outlayof $6 million. In one year, another outlayof $3 million will be needed. The year after that, earnings will increase by $2 million. That profit level will be maintained in perpetuity. What will the new share price of the stock be?
Year 0 Investment (6,000,000)
Year 1 investment (3,000,000)
Year 2 perpetual cash flow 2,000,000
Required return 15%