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CA Final Dividend Discount Model — practice questions — page 2

Explore 60 free Dividend Discount Model questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Dividend Discount Model questions and exercises with answers

Showing questions 31–60 of 60.

Beta in CAPM measures sensitivity to which type of risk?Read the answer and worked solution →By definition, what beta does the market portfolio have?Read the answer and worked solution →A stock with beta above one is what relative to the market?Read the answer and worked solution →On the security market line, what does the slope represent?Read the answer and worked solution →A security that plots above the security market line is considered what?Read the answer and worked solution →Sharpe shared the 1990 Nobel Prize in Economics with Markowitz and which other economist?Read the answer and worked solution →Which version of CAPM drops the assumption of a riskless asset?Read the answer and worked solution →In Black's zero-beta CAPM, what replaces the risk-free rate?Read the answer and worked solution →Which risk is common to all securities and cannot be diversified away?Read the answer and worked solution →The CAPM result is used as what when valuing an asset's cash flows?Read the answer and worked solution →On the security market line, the intercept equals which rate?Read the answer and worked solution →CAPM was built upon the earlier work on diversification of which economist?Read the answer and worked solution →Along with Sharpe, which economist independently introduced CAPM in 1961 and 1962?Read the answer and worked solution →The risk-free rate is 6 percent, market return 12 percent and beta 1.2. What required return does CAPM give?Read the answer and worked solution →With a risk-free rate of 5 percent, equity premium 6 percent and beta 0.8, what is the CAPM required return?Read the answer and worked solution →The risk-free rate is 7 percent and the market return 13 percent. What does CAPM require for a stock with beta 1.5?Read the answer and worked solution →A stock has beta 2, risk-free rate 4 percent and market premium 5 percent. What is its required return?Read the answer and worked solution →Market return is 12 percent and the risk-free rate is 5 percent. What is the market risk premium?Read the answer and worked solution →Which instrument is commonly used as a proxy for the US dollar risk-free rate?Read the answer and worked solution →Why are domestic government bonds seen as a good risk-free proxy?Read the answer and worked solution →In business valuation, which US yield is generally taken as the risk-free rate?Read the answer and worked solution →What does the cost of equity represent for a firm?Read the answer and worked solution →Why is a firm's cost of equity harder to find than its cost of debt?Read the answer and worked solution →A firm's combined cost of debt and equity capital is calculated as what?Read the answer and worked solution →Bond yield plus risk premium adds a premium to which rate?Read the answer and worked solution →As a firm's risk rises, what happens to its cost of capital?Read the answer and worked solution →How is the equity risk premium defined?Read the answer and worked solution →The equity premium puzzle starts from an observed US premium of roughly what size?Read the answer and worked solution →Who named the equity premium puzzle in their 1985 study?Read the answer and worked solution →What equity premium did a standard calibrated general equilibrium model predict?Read the answer and worked solution →

Worked practice questions

Beta in CAPM measures sensitivity to which type of risk?

  1. Systematic market risk
  2. Default risk only
  3. Unsystematic firm risk
  4. Business-specific risk
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Correct answer: A. Systematic market risk

Beta captures how strongly an asset moves with the market, which is the non-diversifiable part of risk.

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By definition, what beta does the market portfolio have?

  1. Zero
  2. Two
  3. Minus one
  4. One
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Correct answer: D. One

The market moves exactly with itself, so its sensitivity to the market is one.

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A stock with beta above one is what relative to the market?

  1. Equally risky as the market
  2. Totally free of risk
  3. Less risky than the market
  4. More risky than the market
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Correct answer: D. More risky than the market

Betas exceeding one signal more than average riskiness, so the stock is discounted at a higher rate.

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