Practice Quiz 2_ Principles of Finance (M)

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The University of Adelaide *

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CORPFIN 70

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Apr 3, 2024

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01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 1/18 Practice Quiz 2 Due No due date Points 61 Questions 25 Time limit None Allowed attempts Unlimited Instructions Attempt history Attempt Time Score LATEST Attempt 1 24 minutes 25 out of 61 Submitted 1 Jul at 15:20 This is an open book quiz. Answer all questions. MCQs :Choose the response that is correct or that best answers the question. Short answer questions : Type your answers in answer boxes provided Take the quiz again 1 / 1 pts Question 1 Which of the following is not an example of unsystematic risk? A legal suit against a company for environmental pollution Changes in the level of interest rates Correct! Correct! The development of a new product line The chief executive officer resigns
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 2/18 0 / 1 pts Question 2 Beta is a measure of the extent to which: the returns on the stock market as a whole change over time. a security's risk can be eliminated by proper diversification. ou Answered ou Answered a security's risk can be eliminated by random diversification. the returns on a given stock move with the stock market. orrect answer orrect answer 1 / 1 pts Question 3 A portfolio with a level of systematic risk the same as that of the market has a beta that is equal to one. Correct! Correct! less than zero. less than the beta of the risk-free asset. equal to zero. Correct answer: b Learning Objective 5.6 ~ discuss which type of risk matters to investors and why (Basic) 0 / 1 pts Question 4 Which of the following statements is true?
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 3/18 Adding a riskless security to a portfolio will increase its overall risk. The amount of risk reduction that can be achieved by adding a new security to an existing portfolio increases as the correlation between the expected returns of the new security and the expected returns on the existing portfolio increases. Adding an asset to a portfolio by random selection will reduce the risk of a portfolio. orrect answer orrect answer Two assets that are perfectly negatively correlated can produce a portfolio with zero variance. ou Answered ou Answered 1 / 1 pts Question 5 Which of the following statements is correct? Unsystematic risk is compensated for by the risk premium. Unsystematic and systematic risks are compensated for by the risk premium. Systematic risk is compensated for by the risk premium Correct! Correct! Unsystematic risk is measured by standard deviation of portfolio’s returns. 1 / 1 pts Question 6
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01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 4/18 A security market line: is a graphical representation of the Capital Asset Pricing Model. Correct! Correct! explains the covariance between the returns on the risky asset and the market portfolio. explains the covariance between the returns on the risky asset and a riskless asset. is a graphical representation of the CML. 0 / 1 pts Question 7 If you were to compare the returns of an individual share to a market index, select the answer below that is most true. None of the options listed. The returns of the individual share will show less variability than those of the market index if they have the same beta. ou Answered ou Answered The returns of the individual share will show more variability than those of the market index if they have the same beta The returns of the individual share will show the same level of variability than those of the market index, if they have the same beta. orrect answer orrect answer
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 5/18 0 / 1 pts Question 8 The risk-free rate is expected to remain at current level in the coming years, while the market risk premium (R - R ), is expected to increase. Based on this forecast, which of the following statements is correct? M F The required return for all shares will increase by the same amount. The required return will increase for all shares with positive betas, but will increase less for shares with higher betas. The required return will increase for shares with a beta less than 1.0 and will decrease for shares with a beta greater than 1.0. ou Answered ou Answered The required return will increase for all shares with positive betas, but will increase more for shares with higher betas. orrect answer orrect answer 0 / 2 pts Question 9 PoF Insurance Company has made an investment in another company that will guarantee it a cash flow of $30,000 each year for the next 12 years. The cash flows occur at the end of each year. If the company uses a discount rate of 5.12 per cent on its investments, what is the present value of this investment? Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 289,804.69 ou Answered ou Answered
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 6/18 264,107.1 margin of error +/- 2% orrect answer orrect answer This question is related to the section of present value of an ordinary annuity. With the formula of: 2 / 2 pts Question 10 Shares A, B, and C have expected returns of 12.28 percent, 17.86 percent, and 29.55 percent, respectively, while their standard deviations are 49.07 percent, 31.75 percent, and 26.63 percent, respectively. If you were considering the purchase of each of these shares as the only holding in your portfolio, what is the coefficent of variation of the most favourable share to include? (Round all answers to 2 decimal places, i.e., 2.35) Coefficent of variation, CV = 0.9 Correct! Correct! 0.9 margin of error +/- 2% orrect answer orrect answer
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01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 7/18 This question is related to the section of: Single-asset portfolios. Since the holding will be made in a completely undiversified portfolio, then we can calculate the risk per unit of return for each share, the coefficient of variation, and choose the share with the lowest value. With the formula of: a= Standard deviation b=expected return 2 / 2 pts Question 11 Ahmet purchased a share for $117 one year ago. The share is now worth $171. During the year, the share paid a dividend of $8. What is the total return to Ahmet from owning the share? Round your answer to 2 decimal places. E.g. if the interest rate is 5.8312%, please type 5.83 in the answer box (do not type the percentage sign). 52.99 Correct! Correct! 52.99 margin of error +/- 2% orrect answer orrect answer Total holding period return= 0 / 2 pts Question 12
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 8/18 Emmy is analysing a two-share portfolio that consists of a utility share and a commodity share. She knows that the return on the utility has a standard deviation of 24 percent, and the return on the commodity has a standard deviation of 27 percent. Calculate the variance of the portfolio if the covariance (σ ) is 0.16, assuming an equal proportion of each share in Emmy’s portfolio (Round all answers to 4 decimal places, i.e., 0.0768) Variance, Var(R ) = 12 2 asset port 0.19 ou Answered ou Answered 0.1126 orrect answer orrect answer This question is related to the section of: Portfolios with more than one asset, with the formula of: Var(R ) = x σ + x σ + 2x x σ 2 asset port 1 2 1 2 2 2 2 2 1 2 12 0 / 2 pts Question 13 An investment opportunity requires a payment of $14,000 for 21 years, starting today. If your required rate of return is 3.33 percent, the value of the investment is $ today. Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 230,043.04 ou Answered ou Answered 216,069 margin of error +/- 2% orrect answer orrect answer
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 9/18 This question is related to the section of: Present value of an annuity due. With the formula of: 0 / 2 pts Question 14 Suppose you borrow $474,000 for a home loan. The interest rate is 8% per annum nominal, and the loan is for 24 years. If you make monthly repayments, how much is each repayment? Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 3,352.88 ou Answered ou Answered 3,706.94 margin of error +/- 2% orrect answer orrect answer Solve the monthly fixed cash flows (PMT) of PV ordinary annuity formula. 2 / 2 pts Question 15 Rajesh Sachdeva bought a Honda Civic for a price of $9,832,050. He put down $8,641,015 and financed the rest through the dealer at an APR of 8.1 percent for four years. If payments are made monthly, the effective annual rate (EAR) is? %
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01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 10/18 Round your answer to 2 decimal places. E.g. if the interest rate is 5.8312%, please type 5.83 in the answer box (do not type the percentage sign). 8.51 Correct! Correct! 8.41 margin of error +/- 2% orrect answer orrect answer This question is related to the section of: Effective Annual Rate. With the formula of: m is the frequency of compounding, which means that m = 12. 0 / 2 pts Question 16 Barbara is considering investing in a share and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Using the table of returns and probabilities below, find the expected return on Barbara’s investment. Probability Return Boom 0.5 25.00% Good 0.2 43% Level 0.1 46% Slump 0.2 -5.00% Expected return, E(R ) = (Round intermediate calculations to 6 decimal places, round final answer to 4 decimal places, i.e., 0.0768.) i
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 11/18 24.7 ou Answered ou Answered 0.247 margin of error +/- 2% orrect answer orrect answer This question is related to the section of: Calculating the variance and standard deviation. 2 / 2 pts Question 17 Your father is 75 years old and wants to set up a cash flow stream that would be forever. He would like to receive $46,000 every year, beginning at the end of this year. If he could invest in account earning 6 per cent, how much would he have to invest today to receive his perpetual cash flow? Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 766,666.67 Correct! Correct! 766,666.67 margin of error +/- 2% orrect answer orrect answer This question is related to the section of: Perpetuity, with the formula of: 0 / 4 pts Question 18
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 12/18 You are currently 35 years old. You plan to retire at age 60 and to invest $22,000 each year into a retirement savings account. Your first amount invested starts one year from now. If the interest rate is 7% per annum nominal, how much money will you have when you retire? Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 1,210,783.52 ou Answered ou Answered 1,391,479 margin of error +/- 2% orrect answer orrect answer This question is related to the section of: Future value of an ordinary annuity , with the formula of: 0 / 4 pts Question 19 Assume that you have just retired. You have a balance of $4 million. You invest this amount in an account that pays 9.8% and you expect to live for another 32 years. If you start withdrawing funds one year from now, how much can you withdraw each year so that nothing is left in the fund after 32 years? Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign).
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01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 13/18 31,129.4 ou Answered ou Answered 412,719.54 margin of error +/- 2% orrect answer orrect answer Solve the fixed cash flows (PMT) of PV ordinary annuity formula. 4 / 4 pts Question 20 In an annuity product sold by a life insurance company, you have to pay a lump sum amount today. In return, you receive a constant amount every end of the year, until you pass away. Assume that the discount rate is 9.3% per annum nominal. If it is assumed that you will live for another 29 years, and the life insurance company will pay you $30,000 each year, what is the amount of money that you need to pay the life insurance company today? Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 293,412.26 Correct! Correct! 298,110 margin of error +/- 2% orrect answer orrect answer
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 14/18 This question is related to the section of present value of an ordinary annuity. With the formula of: 4 / 4 pts Question 21 Stephanie Holland plans to adopt the following investment pattern starting next year. She will invest $1,131 in each of the next two years, and then make investments of$3,736 over each of the following two years. Each of the investment occurs at the end of the year. If the investments are expected to earn 3.39 percent annually, she will have $ at the end of the four years. Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 10,206.34 Correct! Correct! 10,057.6 margin of error +/- 2% orrect answer orrect answer
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 15/18 This question is related to the section of: Future value with multiple cash flows. FV of the first cash flow at the end of year 4 (invested for 3 years), FV = CF x (1+i) FV of the second cash flow at the end of year 4 (invested for 2 years), FV = CF x (1+i) FV of the third cash flow at the end of year 4 (invested for 1 year ) FV = CF x (1+i) The last cash flow invested at the end of year 4 = CF Total cash flow at the end of year 4 = FV + FV + FV + CF 1 1 3 2 2 2 3 3 4 1 2 3 4 0 / 4 pts Question 22 Kania White is a sales executive at a Brisbane company. She is 25 years old and plans to invest $9,739 each year in a retirement savings account until she turns 65 years old. If the investments occur at the beginning of each year, and the retirement savings investment will earn 5.34 percent annually, she will have $ at age 65. Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 1,031,440.39 ou Answered ou Answered 1,347,096.65 margin of error +/- 2% orrect answer orrect answer
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01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 16/18 This question is related to the section of: Future value of an annuity due, with the formula of: 0 / 5 pts Question 23 Syed Ali is a sales executive at a Brisbane company. He is 25 years old and plans to invest $4,820 each year in a retirement savings account until he turns 65 years old. If the investments occur at the beginning of each year, and the retirement savings investment will earn 9.52 percent annually, he will have $ at age 65. Round your intermediate calculations to 6 decimal places, round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 10,924,325.43 ou Answered ou Answered 2,051,435.23 margin of error +/- 0.3 orrect answer orrect answer This question is related to the section of: Future value of an annuity due, with the formula of: 5 / 5 pts Question 24
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 17/18 Kate recently invested in real estate with the intention of selling the property one year from today. She has modeled the returns on that investment based on two economic scenarios. She believes that if the economy stays healthy, then her investment will generate a 25 percent return, while the return will be -15% percent if the economy slips into a recession. If the probabilities of the healthy and recessionary states are 0.7 and 0.3, respectively, then what is the standard deviation of the return on Kate’s investment? (Round intermediate calculations to 6 decimal places, round final answer to 2 decimal places 1.45% 18.33% Correct! Correct! 1.06% 13% This question is related to the section of: Calculating the variance and standard deviation. 0 / 5 pts Question 25 You are now 47 years old and planning to retire at age 68. You currently have: $171,000 in a share portfolio; $279,000 in a superannuation plan; $73,000 in a money market account.
01/07/2023, 15:21 Practice Quiz 2: Principles of Finance (M) https://myuni.adelaide.edu.au/courses/82892/quizzes/157123 18/18 The share portfolio is expected to generate a rate of return of 9.9% per annum. The superannuation plan is expected to generate a rate of return of 6.1% per annum. The money market account is expected to generate a rate of return of 4% per annum, compounded monthly. If you also contribute $1,000 into your superannuation plan every year (starting one year from now), how much will your investments be worth when you retire? Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign). 520,611.05 ou Answered ou Answered 2,418,260.26 margin of error +/- 2% orrect answer orrect answer This question is related to the section of: Future value with multiple cash flows.
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