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1. Sustainability - Which one of the following statements is TRUE?
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Definition
| An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer. |
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2. Time value of money/Investment decision rules - Which of the following statements is FALSE?
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| The Payback period rule should always be used when making investment decisions. |
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3. Portfolio Theory and CAPM - Which of the following statements is FALSE?
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Definition
| Well-diversified portfolios have large firm-specific risk. |
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4. Options - Which of the following statements if FALSE?
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Definition
| A call option gives its owner the obligation to purchase a given asset at a fixed price at some future date |
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5. Stock Valuation - Which of the following statements is correct?
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Definition
| The dividend model estimates the stock price as the present value of all future dividends. |
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6. Bonds - Which of the following statements is FALSE?
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Definition
| A zero-coupon bond pays coupons. |
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7. Searching for an efficient portfolio - Your portfolio consists of a full investment in just one stock, Eriksson. Suppose this stock has an expected return of 13% and volatility of 40%. Suppose further that the tangency portfolio has an expected return of 8% and a volatility of 16%. Also, assume that the risk-free rate is 2%. If CAPM is a valid model of reality, what is the lowest standard deviation among any alternative investment that has the same expected return as your investment? (Express your answer as a percentage and round it 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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8. The market 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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9. Bonds - A zero-coupon bond has face value equal to 1000 and maturity in 15 months. Its yield-to-maturity if expressed as an EAR is equal to 4%. What is the price of this bond? (Answers rounded to two decimal digits)
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10. Stock valuation: FCF model
A company is expected to generate the following free cash flows over the next four years:
Year
1 2 3 4
FCF (in millions)
51.5 69.7 77.3 76.5
After that, the free cash flows are expected to grow at the industry average of 3.6% per year. Using the discounted free cash flow model and a weighted average cost of capital of 13.1%:Assuming that the company has no cash, debt of 306 million, and 44 million shares outstanding, estimate its share price. Round your answer to two decimal digits
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11. Investment advice - 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
What fund should you recommend?
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12. Portfolio Theory - Suppose that in one year, only three possible outcomes can take place. In each one of those possible scenarios the return of the stock of the companies Spin and Bang will take the following values with the indicated probabilities:
Probabilities Spin Bang
0.2 0.09 0.15
0.3 -0.07 0.10
0.5 0.37 0.12
Suppose that you would like to invest in a portfolio of the two and your investment wealth is equal to 100,000 SEK. You would like to allocate 35,000 SEK to Spin and the rest will be invested in Bang. What will be the expected return of your portfolio? (Answers rounded to two decimal digits).
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13. Options - Assume that you purchase 1 call option and 2 put options on the stock of the Spanish company "Presentes y Atentos" with a time to maturity of 3 months. The exercise price on the call option is SEK 50 and the exercise price on the put options is SEK 60. If the stock’s price at maturity is SEK 52, what is the total payoff of your options at maturity?
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14. Mortgage payments - You are considering buying a new home. You will need to borrow 237,000 to purchase the home. A mortgage company offers you a 10-year fixed rate at 6% (as an APR with monthly compounding). If you borrow the money from this mortgage company, your monthly payment will be closest to (answers rounded to a whole number):
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15. Internal Rate of Return - Consider a project with the following cash-flows:
Initial outlay -500 SEK
Year 1 850 SEK
Year 2 125 SEK
Year 3 -500 SEK
What is the IRR of the project? (answers rounded to four decimal digits)
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Definition
| Answer: 30.2466% and 9.7255% |
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16. Stock Valuation: Dividend Model - Assume a company has a current stock price of 50 and will pay 1.9 as dividend in one year; its equity cost of capital is 8%. What price must you expect the stock to sell for immediately after the firm pays the dividend in one year to justify its current price? (Round your answer to two decimal digits)
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17. Equivalent Annual Annuity - Consider a project with an NPV equal to 150 million SEK and a life span of 5 years. The appropriate discount rate to be used in this computation was estimated to be 1%. What is the Equivalent Annual Annuity (EAA) of the project? (Answers in millions rounded to two decimal digits).
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18. Beta - The expected return of the stock of Verizon is estimated to be equal to 16% and the volatility of the market portfolio is equal to 25%. If the expected return of the market portfolio is equal to 13% and the risk-free rate is 1%, what is the beta of Verizon? (Answers rounded to two decimal digits)
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19. Portfolio Theory - What is the standard deviation for the following portfolio? The portfolio has weight 0.2 in stock A and weight 0.8 in stock B. The correlation between stock A and B is 0.7. While the expected returns are expressed as percentages, the variance was obtained by using rates and not percentages in its calculation. (Round your answer to two decimal digits)
Stocks E[R]
A 15% 0.0227
B 11% 0.0123
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20. Present Value - Calculate the present value of 12,000 monetary units if they are received in 21 months, assuming an APR of 8% with quarterly compounding (answers rounded to the nearest integer).
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