12/12/2020 FM Quiz 2

FM Quiz 2 Total points 8/10

The Quiz needs to be submitted before 7.50 PM

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If the average annual rate of return for all common stocks is 13.7%, and 6.0% 1/1
for Indian Treasury bills, what is the average market risk premium?

19.7%

7.7%

13.7%

6%

What is the equivalent Annuity of the following project? Use 7% discount rate 1/1

10.23

3.06

12.3

3.61

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12/12/2020 FM Quiz 2

Stock A has an expected return of 10% per year and stock B has an expected 1/1
return of 20%. If 40% of a portfolio's funds are invested in stock A, and the
rest in stock B, what is the expected return on the portfolio of stock A and
stock B?

10%

20%

16%

26%

Which portfolio had the highest standard deviation during the period 1/1
between 1900 and 2011?

Common Stocks

Government Bonds

Treasury Securities

None of the above

Costs incurred as a result of past, irrevocable decisions and irrelevant to 1/1

future decisions are called:

opportunity costs.

sunk costs.

incremental costs.

marginal costs

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12/12/2020 FM Quiz 2

The current market value of a previously purchased machine proposed for use 0/1
in a project is an example of a:

sunk cost

opportunity cost

fixed cost.

inventory cost

You are considering the purchase of one of two machines required in your 2/2
production process. Machine A has a life of two years. Machine A costs $50
initially and then $70 per year in maintenance. Machine B has an initial cost of
$90. It requires $40 in maintenance for each year of its three-year life. Either
machine must be replaced at the end of its life. Which is the better machine
for the firm? The discount rate is 15% and the tax rate is zero. EAC=Equivalent
Annuity Cost

Machine A as EAC for machine A is $100.76

Machine B as EAC for machine B is $79.42

Machine A as PV of costs for machine A is $163.80

Machine B as PV of costs for machine B is $181.33

Market risk is also called: I) systematic risk; II) undiversifiable risk; III) firm- 1/1
specific risk.

I Only

II Only

II and III are synonyms

I and II are synomyms

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12/12/2020 FM Quiz 2

Proper treatment of inflation in NPV calculations involves:I) discounting 0/1

nominal cash flows by the nominal discount rate;II) discounting real cash flows
by the real discount rate;III) discounting nominal cash flows by the real
discount rate

I Only

II Only

I and II Only

I and III Only

Full Name *

Pragyan Sundarray

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