公司理财课后习题及答案chapter12estimatingthecostofcapital

1、Corporate Finance, 3e (Berk/DeMarzo)Chapter 12 Estimating the Cost of CapitalThe Equity Cost of CapitalUse the following information to answer the question(s) below.BetaVolatilityEenie20%Meenie18%Miney35%Moe25%Assume that the risk-free rate of interest is 3% and you estimate the marketsexpected retu

2、rn to be 9%.Which firm has the most total riskEenieMeenieMineyMoeAnswer: CExplanation: C) Total risk is measured using volatility and Miney has the highest volatility, hence the most total risk.Diff: 1Section: The Equity Cost of CapitalSkill: AnalyticalWhich firm has the least market riskEenieMeenie

3、MineyMoeAnswer: AExplanation: A) Market risk is measured using beta and Eenie has the lowest beta, hence the lowest market risk.Diff: 1Section: The Equity Cost of CapitalSkill: Analytical3) Which firm has the highest cost of equity capital3) Which firm has the highest cost of equity capitalEenieMeen

4、ieMineyMoeAnswer: DExplanation: D) Cost of capital is measured using the CAPMand is a linear function of beta. Therefore the firm with the highest beta (Moe) has the highest cost of equity capital.Diff: 1Section: The Equity Cost of CapitalSkill: AnalyticalThe equity cost of capital for Miney is clos

5、est to:%Answer: CExplanation: C) r Miney = 3% + (9% - 3%) = %Diff: 1Section: The Equity Cost of CapitalSkill: AnalyticalThe equity cost of capital for Meenie is closest to:%Answer: BExplanation: B) r Meenie = 3% + (9% - 3%) = %Diff: 1Section: The Equity Cost of CapitalSkill: AnalyticalThe risk premi

6、um for Meenie is closest to:%Answer: AExplanation: A) risk premium Meenie = (9% - 3%) = %Diff: 2Section: The Equity Cost of CapitalSkill: AnalyticalThe Market PortfolioUse the following information to answer the question(s) below.Suppose all possible investment opportunities in the world are limited

7、 to the four stocks list in the table below:StockPrice perShareNumber of SharesOutstanding (Millions)Taggart Transcontinental$25Rearden Metal$45Wyatt Oil$10Nielson Motors$26The weight on Taggart Transcontinental stock in the market portfolio is closest to:15%20%25%30%Answer: BExplanation: B)Calculat

8、ionsB x CD/1950StockPrice perShareNumber of SharesOutstanding(Millions)MarketCapWeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Diff: 1Section: The Market PortfolioSkill: AnalyticalThe weight on Wyatt Oil stock in the market portfolio is closest to:15%20%25%30

9、%Answer: AExplanation: A)CalculationsB X CD/1950StockPrice perShareNumber of SharesOutstanding(Millions)MarketCapWeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Diff: 1Section: The Market PortfolioSkill: AnalyticalSuppose that you are holding a market portfoli

10、o and you have invested $9,000in Rearden Metal. The amount that you have invested in Nielson Motors is closest to:A) $6,000B) $7,715C) $9,000D) $10,500Answer: DAmounNielson =Weigh ljjelsonx AmountRearden =35-X $9,000 = $10,500*JI JExplanation: D)CalculationsB X CD/1950StockPrice perShareNumber of Sh

11、aresOutstanding(Millions)MarketCapWeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Diff: 2Section: The Market PortfolioSkill: AnalyticalSuppose that you are holding a market portfolio and you have invested $9,000 in Rearden Metal. The amount that you have inves

12、ted in Taggart Transcontinental is closest to:A) $4,500B) $6,000C) $7,715D) $9,000Answer: BExplanation: B)CalculationsB X CD/1950StockPrice perShareNumber of SharesOutstanding(Millions)MarketCapWeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Weigh rrr20AmounNi

13、elson = Weighs3TLix AmountRearden = x $9,000 = $6,000Diff: 2Section: The Market PortfolioSkill: AnalyticalSuppose that you have invested $30,000 invested in the market portfolio. Then the amount that you have invested in Wyatt Oil is closest to:A) $4,500B) $6,000C) $7,715D) $9,000Answer: AExplanatio

14、n: A)CalculationsB X CD/1950StockPrice perShareNumber of SharesOutstanding(Millions)MarketCapWeightTaggart Transcontinental$25$Rearden Metal$45$1Wyatt Oil$10$Nielson Motors$26$Total$AmounWO= Weight wo x AmountMarket =.15 x $30,000 = $4,500Diff: 2Section: The Market PortfolioSkill: AnalyticalSuppose

15、that you have invested $30,000 in the market portfolio. Then the numberof shares of Rearden Metal that you hold is closest to:450 shares700 shares1,400 shares2,300 sharesAnswer: BExplanation: B)CalculationsB X CD/1950StockPrice perShareNumber of SharesOutstanding(Millions)MarketCapWeightTaggart Tran

16、scontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Weighx AmiiuntVarkei 30 * $30 (XUSharesRM=耐&=$3 =sharesDiff: 2Section: The Market PortfolioSkill: AnalyticalSuppose that you have invested $30,000 in the market portfolio. Then the numberof shares of Wyatt Oil that you hold is clo

17、sest to:150 shares300 shares350 shares450 sharesAnswer: ASharesWO=sharesExplanation: A)CalculationsB X CD/1950StockPrice perShareNumber of SharesOutstanding(Millions)MarketCapWeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$PricewO.15 % $30,000 $2925Diff: 2Sect

18、ion: The Market PortfolioSkill: AnalyticalSuppose that you are holding a market portfolio and you have invested $18,000 in Taggart Transcontinental. The number of shares of Wyatt Oil that you hold is closest to:90 shares460 shares615 shares770 sharesAnswer: B=sharesExplanation: B)CalculationsB X CD/

19、1950StockPrice perShareNumber of SharesOutstanding(Millions)MarketCapWeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Weigh two * Amuunti( Weightyj * Price钾o18,0002U $29.25Diff: 2Section: The Market PortfolioSkill: AnalyticalSuppose that you are holding a marke

20、t portfolio and you have invested $18,000in Taggart Transcontinental. The number of shares of Rearden Metal that you hold is closest to:780 shares925 shares1,730 shares2,075 sharesAnswer: BExplanation: B)CalculationsB X CD/1950StockPrice perShareNumber of SharesOutstanding(Millions)MarketCapWeightTa

21、ggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$WeightRk k AmounifT Weightyy x PriceRM.30 * $18,000万市 =2, sharesDiff: 2Section: The Market PortfolioSkill: AnalyticalSuppose that you have invested $100,000 invested in the market portfolio and that the stock price of Ta

22、ggart Transcontinental suddenly drops to $ per share.Which of the following trades would you need to make in order to maintain your investment in the market portfolio:Buy approximately 1,140 shares of Taggart TranscontinentalSell approximately 256 shares of Rearden MetalSell approximately 57 shares

23、of Wyatt OilSell approximately 148 shares of Nielson Motors1 only2 only2, 3, and 4 only1, 2, 3, and 4None of the aboveAnswer: EExplanation: E) There is no need to rebalance your portfolio. As an investor, you still hold the market portfolio and therefore there are no trades needed.Diff: 3Section: Th

24、e Market PortfolioSkill: AnalyticalUse the following information to answer the question(s) below.Suppose that Merck (MRK) stock is trading for $ per share with billion shares outstanding while Boeing (BA) has million shares outstanding and a market capitalization of $ billion. Assume that you hold t

25、he market portfolio.Boeings stock price is closest to:$Answer: CExplanation: 0 Price BA=*常= $Diff: 1Section: The Market PortfolioSkill: AnalyticalMercks market capitalization is closest to:$ billion$ billion$ billion$ billionAnswer: BExplanation: B) Market Cap = Price x shares outstanding = $ x 2,11

26、0 = $77,437 millionDiff: 1Section: The Market PortfolioSkill: AnalyticalIf you hold 1,000 shares of Merck, then the number of shares of Boeing that you hold is closest to:240 shares330 shares510 shares780 sharesCapital izationCapitidizatiunviRKAnswer: BExplanation: B) Shares ba$36,70 x lOOOxS3B,223$

27、36,711 x 2110M2236975=sharesDiff: 3Section: The Market PortfolioSkill: AnalyticalWhich of the following statements is FALSEAll investors should demand the same efficient portfolio of securities in the same proportions.The Capital Asset Pricing Model (CAPM)allows corporate executives to identify the

28、efficient portfolio (of risky assets) by using knowledge of the expected return of each security.If investors hold the efficient portfolio, then the cost of capital for any investment project is equal to its required return calculated using its beta with the efficient portfolio.The CAPM identifies t

29、he market portfolio as the efficient portfolio.Answer: BDiff: 1Section: The Market PortfolioSkill: ConceptualWhich of the following statements is FALSEIf investors have homogeneous expectations, then each investor will identify the same portfolio as having the highest Sharpe ratio in the economy.Hom

30、ogeneous expectations are when all investors have the same estimates concerning future investments and returns.There are many investors in the world, and each must have identical estimates of the volatilities, correlations, and expected returns of the available securities.The combined portfolio of r

31、isky securities of all investors must equal the efficient portfolio.Answer: CDiff: 1Section: The Market PortfolioSkill: ConceptualWhich of the following statements is FALSEIf some security were not part of the efficient portfolio, then every investor would want to own it, and demand for this securit

32、y would increase causing its expected return to fall until it is no longer an attractive investment.The efficient portfolio, the portfolio that all investors should hold, must be the same portfolio as the market portfolio of all risky securities.Because every security is owned by someone, the sum of

33、 all investors portfolios must equal the portfolio of all risky securities available in the market.If all investors demand the efficient portfolio, and since the supply of securities is the market portfolio, then two portfolios must coincide.Answer: ADiff: 2Section: The Market PortfolioSkill: Concep

34、tual17) Which of the following statements is FALSE17) Which of the following statements is FALSEThe market portfolio contains more of the smallest stocks and less of the larger stocks.For the market portfolio, the investment in each security is proportional to its market capitalization.Because the m

35、arket portfolio is defined as the total supply of securities, the proportions should correspond exactly to the proportion of the total market that each security represents.Market capitalization is the total market value of the outstanding shares of a firm.Answer: ADiff: 1Section: The Market Portfoli

36、oSkill: ConceptualWhich of the following statements is FALSEA value-weighted portfolio is an equal-ownership portfolio: We hold an equal fraction of the total number of shares outstanding of each security in the portfolio.Whenbuying a value-weighted portfolio, we end up purchasing the samepercentage

37、 of shares of each firm.To maintain a value-weighted portfolio, we do not need to trade securities and rebalance the portfolio unless the number of shares outstanding of some security changes.In a value weighted portfolio the fraction of money invested in any security corresponds to its share of the

38、 total numberof shares outstanding of all securitiesin the portfolio.Answer: DDiff: 1Section: The Market PortfolioSkill: ConceptualWhich of the following statements is FALSEThe most familiar stock index in the United States is the Dow Jones Industrial Average (DJIA).A portfolio in which each securit

39、y is held in proportion to its market capitalization is called a price-weighted portfolio.The Dow Jones Industrial Average (DJIA) consists of a portfolio of 30 large industrial stocks.The Dow Jones Industrial Average (DJIA) is a price-weighted portfolio.Answer: BExplanation: B) A portfolio in which

40、each security is held in proportion to its market capitalization is called a value-weighted portfolio.Diff: 2Section: The Market PortfolioSkill: Conceptual20) Which of the following statements is FALSE20) Which of the following statements is FALSEBecause very little trading is required to maintain i

41、t, an equal-weighted portfolio is called a passive portfolio.If the number of shares in a value weighted portfolio does not change, but only the prices change, the portfolio will remain value weighted.The CAPM says that individual investors should hold the market portfolio, a value-weighted portfoli

42、o of all risky securities in the market.A price weighted portfolio holds an equal number of shares of each stock, independent of their size.Answer: AExplanation: A) Because very little trading is required to maintain it, a value-weighted portfolio is called a passive portfolio.Diff: 3Section: The Ma

43、rket PortfolioSkill: ConceptualWhich of the following statements is FALSEA market index reports the value of a particular portfolio of securities.The S&P500 is the standard portfolio used to represent the market when using the CAPM in practice.Even though the S&P 500 includes only 500 of the more th

44、an 7,000 individual .Stocks in existence, it represents more than 70% of the . stock market in termsof market capitalization.The S&P 500 is an equal-weighted portfolio of 500 of the largest . stocks.Answer: DExplanation: D) The S&P500 is a value-weighted portfolio of 500 of the largest .stocks.Diff:

45、 2Section: The Market PortfolioSkill: ConceptualWhich of the following statements is FALSEThe S&P500 and the Wilshire 5000 indexes are both well-diversified indexes that roughly correspond to the market of . stocks.Practitioners commonly use the S&P500 as the market portfolio in the CAPMwith the bel

46、ief that this index is the market portfolio.Standard & Poors Depository Receipts (SPDR, nicknamed spider) trade on the American Stock Exchange and represent ownership in the S&P 500.The S&P500 was the first widely publicized value weighted index and it has become a benchmark for professional investo

47、rs.Answer: BDiff: 2Section: The Market PortfolioSkill: ConceptualIn practice which market index is most widely used as a proxy for the market portfolio in the CAPMDow Jones Industrial AverageWilshire 5000S&P 500. Treasury BillAnswer: CDiff: 1Section: The Market PortfolioSkill: ConceptualIn practice

48、which market index would best be used as a proxy for the market portfolio in the CAPMS&P 500Dow Jones Industrial Average. Treasury BillWilshire 5000Answer: DDiff: 1Section: The Market PortfolioSkill: ConceptualUse the table for the question(s) below.Consider the following stock price and shares outs

49、tanding data:Stock NamePrice perShareSharesOutstanding(Billions)Lowes$Wal-Mart$Intel$Boeing$The market capitalization for Wal-Mart is closest to:$415 Billion$276 Billion$479 Billion$200 BillionAnswer: DExplanation: D)SharesMarketCapitalization(Billions)Stock NamePrice perShareOutstanding(Billions)Lo

50、wes$Wal-Mart$Intel$Boeing$Total$Diff: 1Section: The Market PortfolioSkill: AnalyticalThe total market capitalization for all four stocks is closest to:$479 Billion$415 Billion$2,100 Billion$200 BillionAnswer: BExplanation: B)Stock NameSharesMarketCapitalization(Billions)Price perShareOutstanding(Bil

51、lions)Lowes$Wal-Mart$Intel$Boeing$Total$Diff: 1Section: The Market PortfolioSkill: AnalyticalIf you are interested in creating a value-weighted portfolio of these four stocks, then the percentage amount that you would invest in Lowes is closest to: A) 25%11%12%Answer: BExplanation: B)SharesMarketPri

52、ce perOutstandingCapitalizationPercent ofStock Name Share(Billions)(Billions)TotalLowes$%Wal-Mart$%Intel$%Boeing$%Total$Diff: 2Section: The Market PortfolioSkill: Analytical28) Assume that you have $100,000 to invest and you are interested in creating a value-weighted portfolio of these four stocks.

53、 The number of shares of Wal-Mart that you would hold in your portfolio is closest to:71013901000870Answer: CNumber of shares =Diff: 2Explanation: C)Price perStock Name ShareSharesOutstanding(Billions)MarketCapitalization(Billions)Percentof TotalNumber ofSharesLowes$%368Wal-Mart$%1,002Intel$%1,387Bo

54、eing$%190Total$percent of HMdl) $100，口0 price per shareSection: The Market PortfolioSkill: Analytical29) Assume that you have $100,000 to invest and you are interested in creating a value-weighted portfolio of these four stocks. The percentage of the shares outstanding of Boeing that you would hold

55、in your portfolio is closest to:A) .000018%B) .000020%C) .000024%D) .000031%Answer: CExplanation: C)Price perStock Name ShareSharesOutstanding(Billions)MarketCapitalization(Billions)Percentof TotalNumber ofSharesLowes$%368Wal-Mart$%1,002Intel$%1,387Boeing$%190Total$Number of shares =percent of HMdl)

56、 $100，口0 price per sharepercentage shares outstanding = 190/0 = .000024%Diff: 2Section: The Market PortfolioSkill: Analytical 30) Assume that you have $250,000 to invest and you are interested in creating a value-weighted portfolio of these four stocks. How manyshares of each of the fourstocks will

57、you hold What percentage of the shares outstanding of each stock willyou holdAnswer:SharesMarketPrice perOutstandingCapitalizationPercentNumber ofStock Name Share(Billions)(Billions)of TotalSharesLowes$%368Wal-Mart$%1,002Intel$%1,387Boeing$%190Total$% of Shares%Number of shares =perizent oF I 产 $ pr

58、ice per shareIn a value weighted portfolio, the percentage of shares of every stock will be the same.Diff: 3Section: The Market PortfolioSkill: AnalyticalBeta EstimationUse the following information to answer the question(s) below.MarketWyatt OilRisk-freeMarketWyatt OilExcessExcessYearReturnReturnRe

59、turnReturnReturnBeta2007%2008%.40%2009%Wyatt Oils average historical return is closest to:%Answer: Al 咖)7+加2Explanation: A) r average =：MarketWyatt OilRisk-freeMarketWyatt OilExcessExcessYearReturnReturnReturnReturnReturn2007%2008%2009%Average%Diff: 1Section: Beta EstimationSkill: Analytical2) The M

60、arkets average historical return is closest to:2) The Markets average historical return is closest to:%Answer: BYearRisk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%2008%2009%Average%Explanation: B) raverage =r2H7* 12(X)8+ I20093Diff: 1Section: Beta EstimationSkil