Term
| 1. Sustainability - Whick one of the following statements is TRUE? Select one alternative: |
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Definition
| Materiality typically refers to the relative importance of an amount, and the impact it makes on the financial statements. |
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Term
| 2. Portfolio theory and CAPM - What is the lowest possible variance of a portfolio of two stocks whose return has a correlation equal to -1. |
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Definition
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3. Portfolio theory and CAPM.
What relationship exists between historical average returns and standard deviations? |
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Definition
| Large well-diversified portfolios tend to have a higher standard deviation the higher their average returns. |
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Term
4. Efficient portfolios and CAPM.
Which of the following statements is FALSE? |
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Definition
| Under CAPM the market portpolio is inefficient. |
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Term
5. Investment decision rule.
Which one of the following statements is TRUE? |
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Definition
| 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. |
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Term
6. Portfolio theory, CAPM, Bonds and Options.
Which of the following statements is TRUE? |
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Definition
| A call option gives its owner the right to purchase the underlying financial asset at a specified point in time. |
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Term
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. |
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Definition
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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).
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. |
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Definition
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Term
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: |
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Definition
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Term
10. Portfolio theory.
Portfolio Theory
Consider the following two stocks:
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: |
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Definition
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Term
11. CAPM.
Suppose you hold a portfolio of Stock A and Stock B, and your weight on Stock B is equal to 0.7. Suppose further that the beta of Stock A is equal to 1 and the beta of Stock B is equal to 0.78. If CAPM holds and the expected return of the market is equal to 10% and the risk-free rate has a value of 4%, what is the beta of your portfolio? (Round your answer to two decimal digits).
Select one alternative: |
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Definition
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12. Equivalent Annual Annuity.
A company is considering a project that delivers a constant cash-flow of 50 million SEK for five years starting at the end of the first year. It requires an initial investment of 215 million SEK. The discount rate is equal to 5%. What is the Equivalent Annual Annuity (EAA) of the project? (Answer expressed in million SEK and rounded to two decimal digits).
Select one alternative: |
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Definition
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Term
13. CAPM.
The volatility of the stock of Spotify is estimated to be equal to 20% and its correlation with the market portfolio is estimated to be equal to 0.5. Suppose further that the expected return of the market and its volatility are equal to 9% and 15%, respectively. If the risk-free rate is 0%, what is the expected return of Spotify if CAPM holds? (Answers rounded to two decimal digits).
Select one alternative: |
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Definition
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14. Sharpe Ratio.
You are an investment advisor and must choose one of the funds below as a recommendation to your clients. The clients will mix the fund chosen with the risk-free asset. The risk-free rate is 4%.
Expected return Volatility
Fund A 11% 25%
Fund B 6% 15%
Fund C 16% 30%
Select one alternative: |
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Definition
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15. Standard Deviation.
Suppose that the stock of your favorite company had the following returns over the period 2015-2018:
Year Return
2015 4.70%
2016 16.40%
2017 30.10%
2018 19.90%
What would be your estimate of its standard deviation for 2019?
Select one alternative: |
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Definition
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16. Stock Valuation: Dividend Model.
Suppose the company Great Growth has just paid a dividend of 10 SEK per share. This dividend will grow every year by 5%. If the price of the share is 75 SEK (after the above dividend is paid), what is Great Growth's equity cost of capital? (Answer rounded to two decimal digits)
Select one alternative: |
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Definition
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17. Options.
You own one put option with a strike price equal to 90. The option has as underlying the stock of the company Scandal after Scandal. The current price of the stock is 100. What will be the payoff of the option at maturity if the price of the stock at that point is equal to 140?
Select one alternative: |
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Definition
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18. Bonds.
Consider a bond with a face value equal too 1000 SEK and with maturity in 4 years paying seminal coupons. Its yield-to-maturity (expressed as an APR with semiannual compounding) is equal to 2% and its coupon rate is equal to 4,5%. What is the price of this bond? (Answers rounded to two decimal digits).
Select one alternative: |
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Definition
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19. Present Value.
You would like to buy a boat in 3 years. The boat is currently worth 200,000 SEK but you expect an inflation of 3% every year. Suppose that the nominal discount rate is equal to 2%. How much money would you have to deposit in the bank today so that you have exactly the same amount that you need to buy the boat in 3 years? (Answers rounded to two decimal digits).
Select one alternative: |
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Definition
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Term
20. Car loan payments.
Suppose that you would like to borrow 250,000 SEK to buy a car. The loan must be paid back in 9 years by means of equal monthly payments to be made at the end of each month. The bank requires an interest rate of 3% (stated as an APR with monthly compounding). What is the value of your monthly payment? (Answers rounded to two decimal digits).
Select one alternative: |
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Definition
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