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1. A stock is valued at $28.00. The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%. If the stock is lognormally distributed, what is the expected price after 4 years?

A) $28.00 B) $32.33 C) $40.13 D) $54.60

2. Company A and Company B have the same total assets, operating income (EBIT), tax rate, and business risk. Company A, however, has a much higher debt ratio than Company B. Company A's basic earning power (BEP) exceeds its cost of debt financing (rd). Which of the following statements is most correct?

a. Company A has a higher return on assets (ROA) than Company B.

b. Company A has a higher times interest earned (TIE) ratio than Company B.

c. Company A has a higher return on equity (ROE) than Company B, and its risk, as measured by the standard deviation of ROE, is also higher than Company B's.

d. Statements b and c are correct.

e. All of the statements above are correct.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93048807

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