Fundamentals Of Corporate Finance Canadian 6th Edition By Brealey – Test Bank

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
15) If when a coin is tossed the observance of a head rewards you with a dollar and the observance of a
tail costs you fifty cents, how much would you expect to gain after twenty tosses?
A) $7.50 B) $15.00 C) $10.00 D) $5.00
Answer: D
16) Which of the following statements is correct for an investor starting with $1,000 in common stocks
over a 20-year investment horizon in which stocks averaged 11 percent in nominal terms and 4
percent in real terms? The portfolio value is now approximately:
A) $3,870 in nominal terms. B) $8,062 in nominal terms.
C) $1,800 in real terms. D) $3,679 in real terms.
Answer: B
17) An investor receives a 15 percent total return by purchasing a stock for $40 and selling it after one
year with a 10 percent capital gain. How much was received in dividend income during the year?
A) $2.20 B) $2.00 C) $4.00 D) $6.00
Answer: B
18) Which of the following statements is true for a stock that sells now for $60, pays an annual dividend
of $3.00, and experienced a 30 percent return on investment over the past year? Its price one year
ago was:
A) $56.10. B) $48.46. C) $46.15. D) $42.00.
Answer: B
19) Common stock is held for two years, during which time it receives an annual dividend of $10. The
stock was sold for $100 and generated an average annual return of 16 percent. What price was paid
for the stock?
A) $90.91 B) $61.60 C) $88.00 D) $64.80
Answer: A
20) The covariance of two stocks was calculated at -.01733. If the standard deviation of the first stock is
.106 and .164 for the second, determine the correlation.
A) -.887 B) -.687 C) -.587 D) -.997
Answer: D
21) What is the variance of a three-stock portfolio that produced returns of 20 percent, 25 percent and
30 percent?
A) 0.33% B) 0.50% C) 0.17% D) 0.10%
Answer: C
22) If a stock is purchased for $12.50 per share and held one year, during which time a $1.50 dividend is
paid and the price drops to $10.75, the percentage return is:
A) -1%. B) 2%. C) 1%. D) -2%.
Answer: D

23) What is the approximate variance of returns if over the past three years an investment returned 8.0
percent, -12.0 percent, and 15.0 percent?
A) 1.31% B) 0.31% C) 9.61% D) 1.82%
Answer: A
24) Calculate the inflation rate, given a nominal rate of 10.2% and a real rate of 8.05%.
A) 1.99% B) 2.49% C) 1.06% D) 2.99%
Answer: A
25) What is the approximate standard deviation of returns if over the past four years an investment
returned 8.0%, -12.0%, -12% and 15.0%?
A) 11.26% B) 12.26% C) 10.26% D) 9.26%
Answer: C