Finance Questions
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If the one-year discount factor is 0.844, what is the discount rate/interest rate per year?
Which of the following statements regarding profitable and unprofitable growth is FALSE?A firm can increase its growth rate by retaining (and reinvesting) more of its earnings.If the firm retains more earnings, it will be able to pay out less of those earnings, which means that the firm will have to reduce its dividend.If a firm wants to increase its share price, it must cut its dividend and re-invest more of its earningsCutting the firm's dividend to increase investment will raise the stock price if, and only if, the new investments have positive NPV.
Markets are more likely to be weak form efficient than semi-strong efficient becausehistorical stock price information is easy to obtainif everyone traded on historical information, prices would fluctuate wildlyeasy profits would lead everyone to trade on historical informationdata from analyst reports, financial reports, and economic forecasts are arguably harder to obtain and to process than past stock datainsider information is illegal to trade oninvestors can only use information provided by the SEC
The beta of firm A is 1.5 and the beta of firm B is 0.5. What is the difference in returns between firm A and B if the market risk premium is 6%?
The semi-strong form of market efficiency has been tested by measuring how rapidly security prices react to various news items. Specifically, tests have been confirmed that markets react significantly and typically fast to the following events since they contain information relevant for asset prices:Dividend announcementsNews of takeoversMacroeconomic announcements such as new data on GDP growthPresidential election outcome announcementsTop management change announcementsNews of outcomes of lawsuits
If the market risk premium is 8%, then according to the CAPM, the risk premium of a stock with beta value of 1.7 must be
The cost of a building today is EUR 2.9 million and you expect to sell it in one year at EUR 4.5 million. Equally risky investments in the capital market offer a return of 4 percent. What is the NPV of buying the building, in million EUR?
AAA Inc. (AAA) had historical return for the past five years as follows: AAA:0.10, 0.15, 0.20, 0.04, -0.01. Calculate the mean of returns for the company
Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security AAA goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up, and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.The expected return on the market portfolio is closest to
Which of the following statements if FALSE?If we assume that the market portfolio is efficient, then changes in the value of the market portfolio represent unsystematic shocks to the economy.Beta differs from volatility.The risk premium investors can earn by holding the market portfolio is the difference between the market portfolio's expected return and the risk-free interest rate.Stocks in cyclical industries, in which revenues tend to vary greatly over the business cycle, are likely to be more sensitive to systematic risk and have higher betas than stocks in less sensitive industries.
Assume you can invest in 2 stocks only, A and B. Short sales are allowed. Which if the following are feasible portfolios?xa=0.5, xb=0.5xa=1, xb=0xa=2.5, xb=-1.5xa=0.1, xb=0.9xa=1/3, xb=2/3xa=105/103, xb=-2/103xa=0, xb=1.5xa=-0.5, xb=2.5
Which of the following provides a correct measure of the opportunity cost of capital regardless of the timing of the cash flows?
If financial markets are efficient, which of the following investors should have above normal returns on assets over time?None of the other answersThose who choose their stocks by throwing darts at a list of stocks found in the financial pages of a newspaperAnalysts who spend considerable time evaluating the best stocks to buyMutual fund managers who manage other people's money for a livingManagers who can trade on insider information illegally
You purchased a share of stock for $68. One year later you received $3.00 as a dividend and sold the share for $74.50. What was your holding-period return?
In the case of a portfolio that consists of 54 stocks, the formula for portfolio variance contains how many variance terms?
The type of the risk that can be eliminated by diversification is called (select all that apply):Volatility riskIdiosyncratic riskDiversifiable riskMarket riskInterest rate riskDefault riskInflation riskUnsystematic Risk
If the efficient market hypothesis holds, investors should expect (select all that apply):To receive a fair price for their securityTo earn a normal rate of return on their investments, where "normal" indicates commensurate with the risk.To not earn any additional return simply for analyzing past stock price patternsTo be able to pick stocks that will outperform the marketTo be able to outperform the market without necessarily also accepting higher risk
Consider a zero-coupon bond with a $1000 face value and 22 years left until maturity. If the YTM of this bond is 0.4%, then the price of this bond is closest to:
A piece of capital equipment costing $140 today has no (zero) salvage value at the end of 5 years. If straight-line depreciation is used, what is the book value of the equipment at the end of three years?
Stock A has an expected return of 0.09 per year and stock B has an expected return of 0.17. If the portfolio weight of A is 0.47, and the remainder is in stock B, what is the expected return on the portfolio of stock A and stock B?