Finance 300 Test 2

The underlying assumption of the dividend growth model is that a stock is worth… the present value of the future income which the stock generates
The value of common stock today depends on… the expected future dividends, capital gains and the discount rate.
The percentage of a portfolio’s total value invested in a particular asset is called that assets… portfolio weight
The constant dividend growth model is… generally not used in practice because most stocks grow at a non constant rate
The standard deviation of a portfolio will tend to decrease when… one of two stocks related to the airline industry is replaced with a third stock that is unrelated to the airline industry
The slope of an asset’s security market line is the… market risk premium
All else constant, a bond will sell at a ………. when the yield to maturity is ………. the coupon rate. a premium; less than
A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the………. distribution. Normal
The excess return required from a risky asset over that required from a risk-free asset is called the… Risk Premium
The risk premium is computed by………. the average return for the investment. subtracting the average return on the U.S. Treasury bill from
The relationship between nominal rates, real rates, and inflation is known as the… Fisher effect
Risk that affects a small number of assets, each to a greater or lesser degree, is called…….. Diversifiable risk
The stated interest payment, in dollars, made on a bond each period is called the bonds… Coupon
Estimates using the arithmetic average will probably tend to………. values over long-term while estimates using the geometric average will probably tend to………. values over the short-term. Overestimate; Underestimate
Assume that you are using the dividend growth model to value stocks. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect the… Market values of all stocks to decrease, all else constant.
The rate of return required by investors in the market for owning a bond is called the… Yield to maturity

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