Q1 - Sustainability: Which one of the following statements is TRUE? 

Select one alternative:

A positive externality is a cost to society caused by a producer that is not financially incurred or received by that producer.

Materiality typically refers to the relative importance of an amount, and the impact it makes on the financial statements.

A company defaults on a green bond if it uses the proceeds for environmentally harmful activities.

A company’s ESG metrics capture its impact on society.

All the other answers are correct.

Q2 - Portfolio Theory and CAPM: What is the lowest possible variance of a portfolio of two stocks whose return has a correlation equal to -1?

Select one alternative:

Unable to answer without knowing their expected returns.

Besvarad och fel

0

Unable to answer without knowing their variances

1

None of the other answers is correct.

Q3 - Portfolio Theory and CAPM: What relationship exists between historical average returns and standard deviations?

Select one alternative:

Individual stocks tend to have a higher standard deviation the lower their average returns.

None whatsoever

All portfolios or individual stocks tend to have a higher standard deviation, the higher their average returns

Large well-diversified portfolios tend to have a higher standard deviation the higher their average returns.

Individual stocks tend to have a higher standard deviation the higher their average returns

Efficient Portfolios and CAPM

Which of the following statements is FALSE?

Select one alternative:

Under CAPM the market portfolio is efficient.

Efficient portfolios offer the highest possible expected return for a given standard deviation.

The tangency portfolio has the highest Sharpe ratio out of all the risky assets.

Efficient portfolios offer the lowest possible standard deviation for a given expected return.

Under CAPM the market portfolio is inefficient.

Investment decision rule

Which one of the following statements is TRUE?

Select one alternative:

In the presence of two investments which are mutually exclusive, they can be repeated and they have different lifespans, we need to look at their Equivalent Annual Annuity (EAA) in order to decide which one to implement.

Är korrekt

An investment always has an Internal Rate of Return (IRR).

The NPV rule is the rule to follow with no possible exception when making investment decisions.

An investment can never have two Internal Rates of Return (IRR).

The payback rule is a very reasonable way to make investment decisions.

6. Portfolio Theory, CAPM, Bonds and Options

Which of the following statements is TRUE?

Select one alternative:

A bond is a financial asset whose price is always negative.

None of the other answers is correct.

A call option gives its owner the right to purchase the underlying financial asset at a specified point in time.

Full investment in an individual stock reduces firm-specific risk.

The tangency portfolio is created by choosing portfolio weights which are tangentially inconvenient.

7. Searching for an efficient portfolio

Suppose that the economy has only two risky assets given by the shares of two companies: Thick and Thin. Thick has 450 shares and the price of each one of them is 15. Thin has 40 shares and the price of each one of them is 150. Compute the weights of the market portfolio in this simple economy. (Round your answers to two decimal digits)

You need to show your intermediate calculations and how you got to your final answer in order to get points for this question. JUST TYPING THE FINAL ANSWER WILL GIVE YOU ZERO POINTS. DO NOT UPLOAD A FILE. IF YOU DO SO, ITS CONTENT WILL BE IGNORED. YOU NEED TO ANSWER ON THE SPACE PROVIDED.

Fill in your answer here: 

If CAPM holds, the Tangency portfolio = Market portfolio. The Market portfolio will have the highest Sharpe ratio. We have to find an alternative investment with the same SR.

Provided info:

Shares: Price of each:

Thick:  450  15

Thin:    40          150

Value Thick = 450 * 15 = 6750

Value Thin = 40 * 150 = 6000

Value of Market portfolio = 6750 + 6000 = 12750

Thick weight = 6750 / 12750 = 0,5294117647

Thin weight = 6000 / 12750 = 0,4705882353

EJ KLAR och bekräftad av amanuenserna! Delat länk med amanuenserna.

8 - Stock valuation: FCF model:

"A company is expected to generate the following free cash flows over the next five years:

Year         1               2              3               4               5

FCF (in millions)

41.3          75.5          78            77.9          80.7

After that, the free cash flows are expected to grow at the industry average of 2.3% per year.

Using the discounted free cash flow model and a weighted average cost of capital 10,1%:

- Assuming that the company has no excess cash, debt of 201 million, and 51 million shares outstanding, estimate the firm's value. (Use two decimals in your final answer).

Provided info:

Year123456

FCF (in millions)41,375,578 77,9 80,7 82,5561

FCF Growth: 0,023

WACC (cost of capital): 0,101

Debt:201

Shares:51

Growing FCF value: 1034,615385

PV:

37,51135332 62,2834002

58,44301947 53,01370802 1139,111538 1058,411538 654,2111939

Enterprise value:

1350,363019

Share price: 22,53652979

9 - Bonds

A zero-coupon bond with a face value equal to 1000 and maturity in 1 year has a price equal to 1000. What is its yield-to-maturity?

Select one alternative:

10%

0%

1%

5%

100%

None of the other answers is correct.

Provided info:

Face value (FV): 1000

Price: 1000

Time to maturity: 1

 Price = Face value / (1 + YTM)^n

1000 = 1000 / (1+YTM)

1+ YTM = 1000 / 1000

1 + YTM = 1

YTM = 0

10 - Portfolio Theory

Consider the following two stocks:

  | Stock | Expected Return | Standard deviation |

| Stock A | 10% | 18% |

| Stock B | 7% | 14% |

If the correlation of their return is equal to 0.4, what is the standard deviation of a portfolio of the two stocks whose weight in Stock A is equal to 0.8?

 (Answer rounded to two decimal digits)

Select one alternative:

7.00% 

None of the other answers is correct.

0,00%

15.73%

2.47%

10.00%

Provided info:

| Stock | Er | Stddev | Weight | Variance | 

| A       | 0,1 | 0,18 | 0,8 | 0,18^2 = 0,0324 |

| B       | 0,07 | 0,14 | 0,2 | 0,14^2 = 0,0196 |

Correlation: 0,4

Calculate variance portfolio =

((Stock A weight)^2)) * Stock A variance) +

(Stock B weight^2) * Stock B variance) +

2 * Stock a weight * Stock a stdev * correlation * stock b weight * Stock b stddev

=(((0,8^2))*0,0324) +

((0,2^2)*0,0196) +

2*0,8*0,18*0,4*0,2*0,14 = 0,0247456

Calculate Stddev portfolio = 

Roten ur 0,0247456 = 

0,1573073425