Suppose a corporation has two divisions with the different levels of risk. The Blank______ division would tend to have Blank______ returns. Multiple choice question. riskier; higher riskier; lower safer; higher
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Suppose a corporation has two divisions with the different levels of risk. The Blank______ division would tend to have Blank______ returns.
riskier; higher
riskier; lower
safer; higher
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- 1.Which of the following is not something that you would consider when evaluating the optimal capital structure? d. Security Rating. b. EBIT-EPS Analysis. a. Agency Costs. f. Neither the second nor fourth answer is correct. c. Taxes. e. All of the above are considered when determining the optimal capital structure. 2.Which of the following is an argument for the relevance of dividends? b. Reduction of uncertainty. a. Informational content. c. Some investors' preference for current income. d. All of the above. 3.All of the following are true of stock splits EXCEPT: a. Market price per share is reduced after the split. d. Proportional ownership is unchanged. b. The number of outstanding shares is increased. c. Retained earnings are changed.Ceteris paribus, current financial market returns will increase as _____. Group of answer choices a. the uncertainty about the productivity of capital goods increases and people become more risk averse b. the uncertainty about the productivity of capital goods increases and people become less risk averse c. the uncertainty about the productivity of capital goods decreases and people become more risk averse d. the uncertainty about the productivity of capital goods decreases and people become less risk averseWhich of the following performance measures is the most appropriate for an investor who is not fully diversified?A. Treynor ratioB. Information ratioC. M-squaredD. Jensen’s alpha
- Which of the following decision criteria is the easiest to use and very popular among investors? O Payback period. O Internal rate of return. O Average accounting return. Net present value. O Discounted return on investment.__________ considers the impact of changing one or more inputs or assumptions on the resulting answer (output) of an analysis. a.Sensitivity analysis b.Capital rationing c.Expected value analysis d.The net present value methodIn the context of the capital asset pricing model, the systematic measure of risk is captured by _________. Group of answer choices unique risk beta standard deviation of returns variance of returns
- What does beta represent? Multiple Choice Beta is a measure of covariance standardized by the variance of the market. This adjusts the risk of the firm to be relative to the risk of the market. Beta is the extra income earned on an investment that cannot be explained by systematic risk or unsystematic risk. Beta is related to the return on risk-free assets. Beta is always positive or O, it cannot be negative because stock prices cannot be negative.What is WACC (select all that are true)? Group of answer choices Rd (1-Tc) * D/V + Re * E/V Weighted Average Cost of Capital For a firm overall, it is based on the riskiness of the firm's assets While it is generally estimated by looking at the right-hand-side of the balance sheet, it is largely driven by the left-hand-side (i.e., assets) It is the amount that equity holders demand for an investment in a firm It is the amount that debt holders demand for a loan made to the firmThe following profit payoff table was presented in Problem 1: The probabilities for the states of nature are P(s1) = 0.65, P(s2) = 0.15, and P(s3) = 0.20. What is the optimal decision strategy if perfect information were available? What is the expected value for the decision strategy developed in part (a)? Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? What is the expected value of perfect information?
- According to the capital asset pricing model (CAPM), which of the following statements is true (only of them is): (a) A share with more total risk should provide a higher return than one with less total risk. (b) A share with more idiosyncratic risk should provide a higher return than one with less idiosyncratic risk. (c) A share with more systematic risk should provide a higher return than one with less systematic risk. (d) Only a share with no risk (either systematic or idiosyncratic) should pay the risk free rate. (e) The expected market return is the appropriate discount rate of risky projects.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 assumedABC Corporation has a developing market for its product. Good financial risk management will allow it to (A) identify expansion opportunities, (B) lower cost of capital and (C) increase risk exponentially relative to expected returns.a. A and B onlyb. B and C onlyc. A and C onlyd. All of the above.
