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Question 1

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Beta of a stock or portfolio is a measure of market risk. True/ False?

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True

False

Question 2

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The beta of the Treasury Bills is 0. True/ False?

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False

Question 3

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The beta of the market portfolio is:

A. +0.50

B. +1.00

C. -1.00

D. 0.00

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Cyclical firms, with Revenues & Earnings strongly dependent on state of business cycle tend to have high betas. True/ False?

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True

False

Question 5

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If two investments have the same variance, then investors would prefer the investment with lower expected return. True/ False?

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False

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If two investments offer the same expected return, most investors would prefer the investment with higher variance. True/ False?

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False

Question 7

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The risk that cannot be eliminated by diversification is called market risk. True/ False?

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False

Question 8

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Correlation coefficients between any two investments can range from -1 to +1. True/ False?

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True

False

Question 9

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Depreciation acts as a tax shield in reducing the taxes. True/ False?

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False

Question 10

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The NPV of a project decreases as discount rate used to discount Cash Flows decreases. True/ False?

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False

Question 11

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In order to generate a positive NPV project, a firm must have competitive advantage. True/ False?

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False

Question 12

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Working capital is needed additional investment in the project and should be considered for cash flow estimation. True/ False?

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True

False

Question 13

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If a Bond’s Coupon rate is lower than its Yield to maturity (YTM), then the Bond will be quoting at a premium to its Face Value. True/ False?

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False

Question 14

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A Bond with a 'AAA' rating can be called a Junk Bond. True/ False?

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False

Question 15

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When resources are limited, the Profitability Index (PI) provides a tool for selecting among various project combinations and alternatives.

True/ False?

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True

False

Question 16

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If the NPV of a project is positive, it indicates that its Profitability index will be above 0.

True/ False?

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True

False

Question 17

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Which of the following statements most appropriately describes "Scenario Analysis". A. it looks at the project by changing one variable at a time B. it provides the break-even level of sales for the project C. it looks at different but consistent combination of variables D. each of the above statements describes "Scenario Analysis" correctly

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Question 18

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According to Michael Porter, managers can secure a competitive advantage for their firm within its industry by:

A. cost leadership only.

B. product differentiation only.

C. focus on a particular market niche only.

D. All or any of the above 3

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Question 19

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The accounting break-even point occurs when: A. the total revenue line cuts the fixed cost line B. the present value of inflows line cuts the present value of outflows line C. the total revenue line cuts the total cost line D. none of the above

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Question 20

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Project analysis, in addition to NPV analysis, includes the following procedures: I) Sensitivity analysis II) Break-even analysis III) Monte Carlo simulation IV) Scenario Analysis A. I only B. I and II only C. I, II, and III only D. I, II, III, and IV

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Question 21

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The distribution of returns, measured over a short interval of time, like daily returns, can be approximated by: A. Normal distribution B. Lognormal distribution C. Binomial distribution D. none of the above

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Question 22

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The valuation of a common stock today primarily depends on:

A. the number of shares outstanding and the number of its shareholders

B. its expected Future Dividends and its discount rate

C. Wall Street Analysts

D. Investor's luck

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Question 23

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Variance of stock returns is:

A. always negative

B. always positive

C. sometimes positive sometimes negative

D. zero

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Question 24

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Diversification reduces risk because prices of different securities do not move exactly together. True/ False?

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True

False

Question 25

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When calculating cash flows, it is important to consider them on an incremental basis. True/ False?

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True

False

Question 26

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Generally high growth stocks pay high dividends. True/ False?

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True

False

Question 27

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If the average annual rate of return for common stocks is 12%, and for treasury bills it is 4.0%, the market risk premium is 8%? True/ False?

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True

False

Question 28

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A stock with a beta of 1. 25 would be expected to: A. Increase in returns 25% faster than the market in up markets B. Increase in returns 25% faster than the market in down markets C. Increase in returns 125% faster than the market in up markets D. Increase in returns 125% faster than the market in down markets

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Question 29

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The covariance between stock A and stock B is 0.01.

The standard deviation of stock A is 10% and that of stock B is 20%.

Calculate the correlation coefficient between the two securities.

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Question 30

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Bilham Inc has an Earnings per Share (EPS) of $5.

It declares a Dividend of $3 per share (DPS).

What is the company’s Ploughback Ratio (PBR)?

(indicate your answer in decimal, not as %;

eg., if your answer is 0.2, indicate your answer as 0.2, not 20%)

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Question 31

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The beta of Exxon Mobil is 0.60.

The Treasury Bond rate (risk-free rate) is 3%.

The expected rate of return from the market is 11%.

Calculate the expected rate of return from Exxon Mobil (Cost of Equity) as per CAPM.

(give your answer to 2 decimals; do not include % in your answer)

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Question 32

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You are given the following data for year1 for a project.

Revenues = $100 million, Fixed costs = $30million;

Total variable costs = $50 million; Depreciation = $10 million; Tax rate = 30%.

Calculate the after tax cash flow for the project for year-1.

(do not enter $ millions in the answer)

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Question 33

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The covariance between YOHO stock and the market index S&P 500 is 0.05.

The standard deviation of the stock market is 20%.

What is the beta of YOHO?

Express your answer up to 2 decimals.

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Question 34

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If you invest $10,000 today at an annual interest rate of 9%, how much will you receive at the end of 8 years (interest compounded annually)?

(Round your answer to the nearest $; do not indicate $, commas and decimals in your answers)

eg., if your answer is $37568.96, just enter 37569 as your answer, without comma, $ sign or decimal.

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Question 35

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The Cost of Equity for a firm is 10%.

The Pre-Tax Cost of Debt is 8%.

The Market Value of the firm's Equity is $600 million and the Debt is $400 million.

The Tax Rate is 25%.

Calculate the Weighted Average Cost of Capital (WACC) for the firm.

Find your answer as a %, to the 2nd decimal. Do not enter the % sign in the answer box (eg., if your answer is 6.45%, just enter 6.45)

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Question 36

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The Mulholland Corp earned $ 3 million on Net Assets of $20 million.

The Cost of Capital is 12%.

Calculate the Economic Value Added (EVA).

Find the answer in $ million, to the second decimal.

Do not include $ sign in your answer.

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Question 37

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Martha Inc's Earnings and Dividends per share are expected to grow indefinitely by 4% a year forever.

The company is expected to pay a dividend per share of $6 next year.

The market capitalization rate (discount rate) is 6%.

What is the current stock price?

Express your answer to 2 decimals; do not include $ sign in your answer.

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Question 38

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An investor is trying to assess the likely return from a stock he is considering to invest.

The returns in the last 3 years are given in the table below.

Calculate the Standard Deviation of Returns for the stock (give your answer in 2 decimals).

Do not enter % sign in the answer box.

Returns %

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Question 39

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A new grocery store cost $40 million in initial investment.

It is estimated that the store will generate $6 million after-tax cash flow each year for the next 5 years.

At the end of 5 years it can be sold for $30 million.

What is the NPV of the project at a discount rate of 8%?

Give you answer in $ million, to decimals; do not include $ sign in your answer.

eg., if your answer is $2.35 million, enter 2.35 as your answer.

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Question 40

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A 3-year US Government Bond has a Face Value of $100 and a Coupon rate of 6% paid annually.

If the current Interest rate is 7% pa, what would be the Bond’s Price?

(do not include $ sign in your answer; give your answer in 2 decimals)

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Question 41

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Suppose you invest 60% of your portfolio in Bayer and 40% in Delta Airlines.

The Standard Deviations of their annualized daily returns are 20% & 16%, respectively.

Assume a correlation coefficient of 0.40.

Calculate Portfolio variance.

(give your answer in 2 decimals)

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