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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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True

False

**Question**** ****3**

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The beta of the market portfolio is:

- +0.50
- +1.00
- -1.00
- 0.00

Select one:

A

B

C

D

**Question**** ****4**

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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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True

False

**Question**** ****6**

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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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True

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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True

False

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**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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True

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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True

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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True

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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True

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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True

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

Select one:

A

B

C

D

**Question**** ****18**

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

- cost leadership only.
- product differentiation only.
- focus on a particular market niche only.
- All or any of the above 3

Select one:

A

B

C

D

**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

Select one:

A

B

C

D

**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

Select one:

A

B

C

D

**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

Select one:

A

B

C

D

**Question**** ****22**

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The valuation of a common stock today primarily depends on:

- the number of shares outstanding and the number of its shareholders
- its expected Future Dividends and its discount rate
- Wall Street Analysts
- Investor’s luck

Select one:

A

B

C

D

**Question**** ****23**

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Variance of stock returns is:

- always negative
- always positive
- sometimes positive sometimes negative
- zero

Select one:

A

B

C

D

**Question**** ****24**

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

Select one:

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?

Select one:

True

False

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**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?

Select one:

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

Select one:

A

B

C

D

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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 % |

6 |

8 |

10 |

Answer:

**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)

Answer: