Multiple choice

1. Current price of Company X's stock is $90. The table below gives the data on end of the year prices and probabilities dependent on the state of the economy. Calculate the expected return for the stock.    

a. 10% 

b. 15% 

c. 22.2% 

d. None of the above 

2. The opportunity cost of capital for a risky project is  

a. The expected rate of return on a government security having the same maturity as the 

project 

b. The expected rate of return on a well-diversified portfolio of common stocks 

c. The expected rate of return on a portfolio of securities of similar risks as the project 

d. None of the above 

3. Mr. Free has $100 dollars income this year and zero income next year. The market interest rate is 10% per year. If Mr. Free consumes $30 this year, and invests the rest in the market, what will be his consumption next year?  

a. $50 

b. $100 

c. $77 

d. $55 

4. Mr. Bird has $100 income this year and zero income next year. The market interest rate is 10% per year. Mr. Bird also has an investment opportunity in which he can invest $50 today and receive $80 next year. Suppose Mr. Bird consumes $30 this year and invests in the project. What will be his consumption next year?  

a. $88 

b. $102 

c. $80 

d. $100