CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 2

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CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 2

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CFA 2026 Level II Vignettes Corporate Finance Cost of Capital Free Quiz 2

Practice CFA 2026 Level II Vignettes Corporate Finance MCQs from Cost of Capital. Get instant results with Explanation.

General10 MCQs

1. Vignette 3: Cost of Capital - Case Study: A stock currently trades at $50, expects a dividend of $2 next year, and has a constant growth rate of 5%. What is the cost of equity using the DDM?

A. Re = D1 / P0B. Re = (D1 / P0) + gC. Re = D0 / P0 + gD. Re = (D0 × (1+g)) / P0

2. Calculate the cost of equity for the stock.

A. 8%B. 10%C. 9%D. 7%

3. What are the limitations of the DDM for estimating cost of equity?

A. It is sensitive to the growth rate and assumes constant growthB. It does not require dividendsC. It is always accurateD. It is not used in practice

4. What is the bond yield plus risk premium approach?

A. It uses the CAPMB. It uses the DDMC. It uses the risk-free rate onlyD. It adds a risk premium to the company's bond yield

5. What is the limitation of DDM for companies with no dividends?

A. DDM is always applicableB. DDM is not applicable for non-dividend paying stocksC. DDM is the only methodD. DDM is never used for large companies

General10 MCQs

6. Vignette 4: Cost of Capital - Case Study: A company has bonds outstanding with a coupon rate of 5%, but market yields are now 6%. Which rate should be used as the cost of debt?

A. The coupon rate on the bondsB. The book value of debtC. The yield to maturity (YTM) on the debtD. The prime rate

7. Which rate should be used as the pre-tax cost of debt?

A. 6% (market YTM)B. 5% (coupon rate)C. Average of 5% and 6%D. The risk-free rate

8. What is the formula for the cost of preferred stock?

A. Rp = Dp × PpB. Rp = Pp / DpC. Rp = Dp / Pp × (1 – T)D. Rp = Dp / Pp

9. How is the cost of debt determined when a company has multiple bonds?

A. Use the lowest YTM among the issuesB. Use the weighted average of the YTM of all debt issuesC. Use the highest YTMD. Use the risk-free rate

10. What tax rate should be used for the interest tax shield?

A. The effective tax rateB. The statutory tax rateC. The marginal tax rateD. The average tax rate

📋 CFA - Test Online Practice Quizzes

CFA

Conducting Body: CFA Institute

Frequency: 4 times a year (February, May, August, November) | Time: 135 Minutes

Negative Marking: No

⚡ Test Pattern (Total: 90 MCQs):

Alternative Investments: 8 MCQs
Corporate Issuers: 7 MCQs
Derivatives: 5 MCQs
Economics: 7 MCQs
Equity Investments: 12 MCQs
Ethics: 16 MCQs
Financial Statement Analysis: 11 MCQs
Fixed Income: 11 MCQs
Portfolio Management: 9 MCQs
Quant Methods: 6 MCQs

Merit Formula: -

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