How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask linda_us Your Own Question

linda_us
linda_us, Master's Degree
Category: Multiple Problems
Satisfied Customers: 1247
Experience:  Business Analyst and Solution Consultant with over 9 years of experience.
19873544
Type Your Multiple Problems Question Here...
linda_us is online now
A new question is answered every 9 seconds

1. Using the Capital Asset Pricing Model, estimate the required

Customer Question

1. Using the Capital Asset Pricing Model, estimate the required rate of return for Caterpillar Incorporated stock if the company’s beta is 1.87 (as of February 1, 2013). Use a risk-free rate of 3% and a market risk premium of 6%. (Points : 1)
8.61%
11.22%
14.22%
16.83%


2. In order to find the cost of equity using the firm’s cost of debt, the rule of thumb is to: (Points : 1)
multiply Kd by one plus the tax rate.
multiply Kd by one minus the tax rate.
add 3% to 6% to Kd.
multiply Kd by the firm’s beta.


3. In the Capital Asset Pricing Model, the market risk premium is best approximated by: (Points : 1)
the most recent one-year return on the S&P 500 Index (or another market index).
the long-term historic return on a stock market index such as the S&P 500 (or another market index).
the long-term average spread of the S&P 500 (or another market index) over the yield of long-term government bonds.
the return of the S&P 500 (or another market index) over the current yield of long-term government bonds.


4. Which of the following statements regarding business risk, financial risk, and investors’ risk, is true? (Points : 1)
Business risk is very similar to the risk of bankruptcy and is closely linked to the amount of debt in a firm’s financing mix.
Financial risk is associated with the returns earned by equity investors.
Business risk is often measured by the variability of earnings before depreciation and taxes and is closely associated with the risk inherent in the goods and services a business is selling.
Investment risk is the uncertainty associated with a firm’s investment projects. It can be thought of as the likelihood that the expected IRR or NPV from an investment project will not materialize.


5. The financing mix reflected in the WACC should: (Points : 1)
reflect the desired mix and not necessarily the mix being used to finance a specific project.
vary from project to project, depending on how they are financed.
always reflect the firm’s current capital structure.
None of these answers is correct.


6. Total risk is measured by: (Points : 1)
the standard deviation of returns.
the firm’s beta.
Moody’s, Standard & Poor’s, and Fitch ratings.
the variability of EBIT.


7. Which of the following is true of flotation costs? (Points : 1)
They include expenses like investment banker fees and commissions.
They include the underwriting spread.
They tend to raise the cost of capital.
all of the above


8. Which of the following is true regarding market risk? (Points : 1)
It is measured by beta.
It is also called nondiversifiable risk.
It is also called systematic risk.
all of the above


9. We assume investors are risk averse, and therefore they: (Points : 1)
are equally concerned with upside potential and downside risk.
expect a higher return for bearing more risk.
will pay more for an investment with higher risk.
have very high required rates of return.


10. One reason why we are not concerned with idiosyncratic risk (also called firm-specific risk) is that: (Points : 1)
most risk is not firm-specific, so we can ignore it.
through hedging and insurance, investors may now invest in stocks with almost no risk exposure of any kind.
it is easy and almost costless to diversify one’s portfolio and eliminate idiosyncratic risk.
investing in bonds can offset the idiosyncratic risks of shares of stock.
Submitted: 11 months ago.
Category: Multiple Problems
Expert:  Angela--Mod replied 11 months ago.

Hello, I'm a moderator for this topic. I've been working hard to find a professional to assist you right away, but sometimes finding the right professional can take a little longer than expected.

I wonder whether you're ok with continuing to wait for an answer. Please let me know and I will assist further. Thank you!

 

Best,

Angela

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
< Last | Next >
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
  • I couldn't be more satisfied! This is the site I will always come to when I need a second opinion. Justin Kernersville, NC
  • Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. Esther Woodstock, NY
  • Thank you so much for taking your time and knowledge to support my concerns. Not only did you answer my questions, you even took it a step further with replying with more pertinent information I needed to know. Robin Elkton, Maryland
  • He answered my question promptly and gave me accurate, detailed information. If all of your experts are half as good, you have a great thing going here. Diane Dallas, TX
 
 
 

Meet The Experts:

 
 
 
  • linda_us

    Master's Degree

    Satisfied Customers:

    1051
    Business Analyst and Solution Consultant with over 9 years of experience.
< Last | Next >
  • http://ww2.justanswer.com/uploads/LI/lindaus/2012-6-10_04811_IMG20120609164157.64x64.jpg linda_us's Avatar

    linda_us

    Master's Degree

    Satisfied Customers:

    1051
    Business Analyst and Solution Consultant with over 9 years of experience.
  • http://ww2.justanswer.com/uploads/ED/educatortech/2012-6-7_1256_williams4.64x64.jpg Mr. Gregory White's Avatar

    Mr. Gregory White

    Master's Degree

    Satisfied Customers:

    775
    M.A., M.S. Education / Educational Administration
  • http://ww2.justanswer.com/uploads/FL/FLAandNYLawyer/2012-1-27_14349_3Fotolia25855429M.64x64.jpg FiveStarLaw's Avatar

    FiveStarLaw

    Doctoral Degree

    Satisfied Customers:

    565
    Lawyer, Accountant and Researcher
  • http://ww2.justanswer.com/uploads/BU/BusinessTutor/2012-2-2_115741_Kouki2.64x64.jpg Manal Elkhoshkhany's Avatar

    Manal Elkhoshkhany

    Bachelor's Degree

    Satisfied Customers:

    528
    Completed by BA degree in 1988 and graduated with a GPA of 4.0
  • http://ww2.justanswer.com/uploads/JawaadAhmed/2009-6-27_12137_SIs_SHadi.jpg F. Naz's Avatar

    F. Naz

    B.Com

    Satisfied Customers:

    384
    have completed B.Com and CA Finalist
  • http://ww2.justanswer.com/uploads/JK/jkcpa/2011-1-16_182614_jkcpa.64x64.jpg Bizhelp's Avatar

    Bizhelp

    CPA

    Satisfied Customers:

    373
    BA degree and Certified Public Accountant
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg MyVirtualCPA's Avatar

    MyVirtualCPA

    Master's Degree

    Satisfied Customers:

    135
    Master's degree holder who loves to help you understand your MC homework problems
 
 
 

Related Multiple Problems Questions