midterm practice 10

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University of Mississippi *

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605

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Finance

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Feb 20, 2024

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docx

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2

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5. Engel Curves: a. Define Engel curves and explain how they can be used to analyze the relationship between income and the quantity demanded of a good. Provide an example to support your explanation. b. Question 5: Dividend Policy (15 points) a) Explain the relevance and importance of dividend policy for a corporation. (8 points) b) XYZ Corp. has a net income of $500,000, and its shareholders' equity is $2,000,000. If the company has 100,000 outstanding shares, calculate the earnings per share (EPS). If the company decides to distribute 40% of its earnings as dividends, calculate the dividend per share. (7 points) Ethical Considerations in Management Explore the role of ethics in managerial decision-making. Provide examples of ethical dilemmas managers might face and discuss how they should address them. Instructions: Answer all multiple-choice questions. Respond to both short answer questions. Analyze the case study in Section C. Choose one essay question from Section D to answer a) Define the Efficient Market Hypothesis (EMH). What are the three forms of EMH, and how do they differ? b) Provide an example for each form of EMH and explain how it illustrates the respective level of market efficiency. Question 3: Asset Pricing Models
a) Compare and contrast the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). Highlight their assumptions and main differences. b) Discuss the factors that can affect the expected return of an asset according to the CAPM. Question 4: Behavioral Finance a) Define behavioral finance and discuss how it differs from traditional finance theories. b) Provide an example of a behavioral bias that can influence financial decision-making. Explain its impact on market outcomes. Question 5: Financial Derivatives a) Explain the concept of financial derivatives and provide examples of commonly traded derivatives. b) Discuss the role of options in risk management. How can an investor use options to hedge against unfavorable market movements? Question 6: Corporate Finance a) Describe the Modigliani-Miller Propositions. What are the assumptions underlying these propositions, and how do they relate to capital structure decisions?
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