In the Equation K_j = R_f + ß_j (R_m -

question 90

Multiple Choice

In the equation K_j = R_f + ß_j (R_m - R_f) ,

• A) beta (ß_j) is the stock's measure of volatility relative to the market.
• B) R_m - R_f is the premium or excess return of the market versus the risk free rate.
• C) ß_j (R_m - R_f) is the expected return above the risk-free rate for the stock of company j.
• D) all of the other answers are correct

Understand the importance and application of probability density functions.

Know the concept and calculation of a standard normal distribution.

Distinguish between continuous and discrete random variables.

Grasp the relationship between standard deviation values and the shape of a normal curve.

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Definitions:

Cumulative Preferred

A type of preferred stock where dividends accumulate if not paid in a given period and must be paid out before any dividends can be distributed to common stockholders.

Dividends in Arrears

Dividends owed on cumulative preferred stock that require payment prior to distributing any dividends to holders of common stock.

Par Value

The nominal or face value of a bond, or stock, as stated by the issuing company.

Treasury Stock

Shares that were issued and subsequently reacquired by the company. They are held in the company’s treasury and can be reissued or retired.