Risk and Return Measures - Sample Questions 27 - 31


  1. Cost of capital:
    1. Is referred to the capitalization rate in the real estate valuation process.
    2. Represents the required rate of return for a project.
    3. May be derived using the capital asset pricing model.
    4. All of the foregoing.
  2. The capitalized earnings valuation method may be used to appraise the worth of:
    1. Common stock.
    2. Step-up notes.
    3. Preferred stock and real estate.
    4. Mortgage backed securities.
  3. If a bond's yield declines from 6.3% to 4.9% and its price increases 6.5%, then its duration is:
    1. 4.64
    2. 5
    3. .02
    4. Either a or b
  4. Inputs to the constant growth dividend model include all of the following, except:
    1. The risk-free rate.
    2. The current yield on corporate bonds of similar maturity.
    3. The company's dividend stream.
    4. The beta of the stock being evaluated.
    5. The projected earnings growth rate.
  5. With respect to duration, which of the following definitions correct?
    1. The degree of a bond's volatility in response to interest rate fluctuations.
    2. How quickly the creditor expects to be repaid.
    3. Of two bonds with identical maturities, the more highly rated paper has the lower duration.
    4. Comparing two bonds of equal maturity, the zero coupon bond has the longer duration.
    1. I, II, III
    2. III, IV
    3. I, II, IV
    4. I, II, III, IV
Answers 1 - 20


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