1. A good way to reduce macro risk in a stock portfolio is to invest in...

Question:

1. A good way to reduce macro risk in a stock portfolio is to invest in stocks that:

a. have only specific risks.                                                                         b. have diversified away the macro risk.

c. have low exposure to business cycles.                                                 d. pay guaranteed dividends.

2. What is the most likely explanation for a +20.0% return on a stock with a beta of 1.0 in a month when the market

returned +10.0%?

a. The stock is aggressive.                                                                        b. The market is undervalued.

c. Favorable firm-specific news was reported.                                    d. The beta is really less than 1.0.

3. A project requires an investment of $10 million and offers an annual after-tax cash flow of$1,250,000 indefinitely. If the

firm's WACC is 12.5% and the project is riskier than the firm’s average projects, should it be accepted%?

a. Yes, since the project's NPV is positive.

b. Yes, since a zero NPV indicates marginal acceptability.

c. No, since the project's NPV is zero.

d. No, since the project's NPV is negative.

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