Section 5

10. some true or false questions about the apt: a. the apt factors cannot reflect diversifiable risks. b. the market rate of return cannot be an apt factor. c. each apt factor must have a positive risk premium associated with it; otherwise the model is inconsistent. d. there is no theory that specifically identifies the apt factors. e. the apt model could be true but not very useful, for example, if the relevant factors change unpredictably

Question 4 a)  “When choosing the appropriate group of risk factors to include in a multifactor Arbitrage Pricing Theory (APT) model, we must allow for both unsystematic and systematic sources of risk.” Comment on this statement, in no more than 100 words.

What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumed

Is the statement that a pproject that is unacceptable today might be acceptable tommorrow given a change in market returns correct?

What assumption about risk-adjusted techniques for measuring performance poses a potential problem? A. Portfolio risk is constant overtime B. Returns are normally distributed  C. Mean reversion D. None of the options are correct E. Lognormal outcome of prices

Which of the following statements regarding unsystematic risk is accurate?   Multiple Choice   It is measured by beta. It is compensated for by the risk premium. It can be effectively eliminated by portfolio diversification. It is measured by standard deviation. It is related to the overall economy.

The feature of the general version of the arbitrage pricing theory (APT) that offers the greatest potential advantage over the simple CAPM is the:a. Identification of anticipated changes in production, inflation, and term structure of interest rates as key factors explaining the risk–return relationship.b. Superior measurement of the risk-free rate of return over historical time periods.c. Variability of coefficients of sensitivity to the APT factors for a given asset over time.d. Use of several factors instead of a single market index to explain the risk–return relationship.

What assumption about risk-adjusted techniques for measuring performance poses a potential problem? A. Portfolio risk is constant over time B. Returns are normally distributed C. Mean reversion   D. None of the options are correct.

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Which of the following is true according to the pure expectations theory? Forward rates:a. Exclusively represent expected future short rates.b. Are biased estimates of market expectations.c. Always overestimate future short rates.

Questions 31 through 36 are related. 31. If a change in the investment environment leads to an increase in the Risk-Free Rate while the Return on the Market Portfolio remains constant, the Market Risk Premium [Rm - Rf] would be expected to: a. Increase. b. Decrease. c. Remain Unchanged. d. Cannot be determined. e. None of the above answers is correct.

Market risk ________.   a. is equal to the rate of return generated by a risk-free asset b. cannot be eliminated, as it is non-diversifiable c. is synonymous with diversifiable risk d. is synonymous with financial risk

Which of the following risks is indicated by the beta coefficient in Financial Management? a.Adjusted risk b.Non diversifiable risk c.Diversifiable risk d.None of these

At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only II and IV only III and IV only ооо O

1. Define the components of holding period return. Can any of these components be negative? 2. How do you understand an investment risk and what statistic tools can be used to measure it?

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Unsystematic risk: is compensated for by the risk premium. is measured by standard deviation. is related to the overall economy. can be effectively eliminated by portfolio diversification. is measured by beta.

Subject 3 A. Proponents of the use of Fair Value Accounting (FVA) argue that the use of fairvalue reflects current market conditions. On the contrary, opponents of the FVAargue that under specific circumstances, such as a financial crisis, mark-to-marketaccounting may lead to considerable volatility in the financial statements andespecially the Income Statement (Laux and Leuz, 2009). Critically discuss themerits and flaws of FVA in relation to cost accounting.  Recommended Reference Laux, C., & Leuz, C. (2009). The crisis of fair-value accounting: Making sense ofthe recent debate. Accounting, organizations and society, 34(6-7), 826-834.

4.32 Investment risk analysis. The risk of a portfolio of financial assets is sometimes called investment risk. In general, in- vestment risk is typically measured by computing the vari- ance or standard deviation of the probability distribution that describes the decision maker's potential outcomes (gains or losses). The greater the variation in potential outcomes, the greater the uncertainty faced by the decision maker; the smaller the variation in potential outcomes, the more predictable the decision maker's gains or losses. The two discrete probability distributions given in the next table were developed from historical data. They describe the potential total physical damage losses next year to the fleets of delivery trucks of two different firms. Loss Next Year SO 500 NW 1,000 1,500 2,000 2.500 Firm A 3.000 3,500 4,000 4,500 5,000 Firm B Probability Loss Next Year 01 SO 0 .01 200 .01 700 1,200 1,700 2,200 2,700 3.200 3.700 4,200 4,700 30 .01 01 Probability 85984579985 .30 a.…