1. If a security plots below the security market line, it is:
A. ignoring all of the security's unique risk.
B. underpriced, a situation that should be temporary.
C. offering too little return to justify its risk.
D. a defensive security, which expects to offer lower returns.
2. A project has an assigned beta of 1.24, the risk-free rate is 3.8%, and the market rate of return is 9.2%. What is the project's expected rate of return?
3. Which one of these statements is correct?
A. Betas are exact measurements.
B. If a stock has a very low beta, it is most apt to maintain that beta in the future.
C. The expected future risk premium is easy to accurately determine.
D. CAPM is widely used as a means of valuing stock.
4. A project with higher than average risk offers an expected return of 14%. Which statement is correct if the company's opportunity cost of capital is 12% and the project's opportunity cost of capital is 15%?
A. Project NPV is positive; it should be accepted.
B. Project NPV is negative; it should be rejected.
C. Project NPV is positive but it should be rejected.
D. Project NPV is negative but it should be accepted.