Financial Management - Study Mode

[#111] Stocks which has lower book for market ratio are considered as
Correct Answer

(C) less risky

Explanation

Solution: Stocks which has lower book for market ratio are considered as less risky. A company whose stock is trading at a discount on its book value is not necessarily cheap. In particular, you should expect companies that have low returns on equity, high risk and low growth potential to trade at low price to book ratios.

[#112] An individual stock required return is equal to risk free rate plus bearing risk premium is an explanation of
Correct Answer

(A) security market line

Explanation

Solution: An individual stock required return is equal to risk free rate plus bearing risk premium is an explanation of security market line. The security market line (SML) is a line drawn on a chart that serves as a graphical representation of the capital asset pricing model (CAPM), which shows different levels of systematic, or market, risk of various marketable securities plotted against the expected return of the entire market at a given point in time.

[#113] Future beta is needed to calculate in most situations is classified as
Correct Answer

(A) historical betas

Explanation

Solution: Future beta is needed to calculate in most situations is classified as historical betas. A beta coefficient is a measure of the volatility, or systematic risk, of an individual stock in comparison to the unsystematic risk of the entire market.

[#114] An efficient set of portfolios represented through graph is classified as an
Correct Answer

(B) efficient frontier

Explanation

Solution: An efficient set of portfolios represented through graph is classified as an efficient frontier. The efficient frontier is the set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.

[#115] Rational traders immediately buy stock when price is
Correct Answer

(A) too low

Explanation

Solution: Rational traders immediately buy stock when price is too low.