Term
Options - Which of the following statement is FALSE?
Select one alternative:
European options can only be exercised at the expiration date
A call option gives its owner the obligation to purchase a given asset at a fixed price at some future date
American options allow their holders to exercise the right on any date up to and including a final date called expiration date
A put option gives its owner the right to sell a given asset at a fixed price at some future date
A call option gives its owner the right to purchase a given asset at a fixed price at some future date |
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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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Term
Bonds - Which of the following statements is FALSE?
Select one alternative:
The coupon rate establishes the total amount to be paid to the owner of the bond in coupons over one year
A zero-coupon bond pays coupons
If the yield to maturity of a bond goes up, its price goes down
None of the other answers are correct. (This answer should be chosen if you consider that all the other statements are true).
If the yield to maturity of a coupon bond is equal to the coupon rate, its price is equal to its face value. |
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Definition
| A zero-coupon bond pays coupons |
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Term
Portfolio Theory and CAPM - Which of the following statements is FALSE?
Select one alternative:
The tangency portfolio of a given invesment universe is its portfolio of risky assets with the highest Sharpe ratio
If CAPM is a valid model, the market portfolio is the tangency portfolio
The beta of a financial asset can be greater than one
If CAPM is a valid model, the expected return of a stock with a beta equal to zero is equal to the risk-free rate
Well-diversified portfolios have large firm-specific risk |
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Definition
| Well-diversified portfolios have large firm-specific risk |
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Term
Miscellaneous - Which one of the following statements is correct?
Select one alternative:
The Payback period rule is the best investment decision rule
None of the above is correct
When comparing two cash-flows, it does not matter when they take place
The real rate takes into account inflation
A zero-coupon bond pays coupons |
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Definition
| The real rate takes into account inflation |
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Term
Time value of money and investment decision rules - Which of the following statement is FALSE?
Select one alternative:
A project may have multiple internal rates of return
A project may have no internal rate of return
The NPV rule and the IRR rule do not always give the same answer
The law of one price says that equivalent invesment opportunities should have the same price
The payback rule is the investment decision rule that must always be followed.
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Definition
| The payback rule is the investment decision rule that must always be followed. |
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Term
Sustainability - Which one of the following statements is FALSE
Välj ett alternativ:
Positive screening means selection of companies that meet certain pre-set criteria
Stocks with high ESG scores commonly have lower beta-values compared to stocks with lower ESG scores
None of the other answers are correct. (This answer should be chosen if you consider that all the other statements are true)
Negative externalities occur when a product’s price does not reflect the true costs of that product
Green bonds are bonds where proceeds are used for investments in climate-related projects |
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Definition
| None of the other answers are correct. (This answer should be chosen if you consider that all the other statements are true) |
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Term
| The market portfolio - Suppose that the economy has only two risky assets given by the shares of two companies: Blue and Red. Blue has 250 shares and the price of each one of them is 10. Red has 50 shares and the price of each one of them is 100. Compute the weights of the market portfolio in this simple economy. (Round your answers to two decimal digits) |
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Definition
Provided info:
Company: Shares: Price (of each):
Blue: 250 10
Red: 50 100
Calculate value:
Blue: (250 * 10) = 2500
Red: (50 * 100) = 5000
Total: 2500 + 5000 = 7500
Calculate weight:
Blue: 2500 / 7500 = 0,3333333333
Red: 5000 / 7500 = 0,6666666667
Answer:
The weights of the market portfolio in this simple economy is Blue equals to 33% and Red is equal to 66%. |
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Term
| Searching for an efficient portfolio - Your portfolio consists of a full investment in just one stock, IBM. Suppose this stock has an expected return of 19% and volatility of 40%. Suppose further that the tangency portfolio has an expected return of 12% and a volatility of 18%. Also, assume that the risk-free rate is 5%. Under the CAPM assumptions, what is the volatility of the alternative investment that has the lowest possible volatility while having the same expected return as your investment? (use two decimal digits in your final answer) |
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Definition
Provided info: - (| Company | E(r) | Volatility |)
| IBM | 0,019| 0,4 |
| Tangency portfolio | 0,12| 0,18 |
Risk-free rate = 0,05
Calculate Sharpe Ratio tangency portfolio:
(Tangency portfolio E(r) - Risk-free rate)
/
Tangency portfolio volatility
(0,12 - 0,05)
/
0,18
=
0,3888888889
Calculate CML:
R = Rf + Sharpe Ratio + Volatility
0,19 = 0,05 + 0,3889 * Volatility
0,19 = 0,05 + 0,3889 * Volatility
0,19 - 0,05 = 0,3889 * Volatility
0,14 = 0,3889 * Volatility
Volatility = 0,14 / 0,3889 = 0,36
Answer:
The volatility of the alternative investment that has the lowest possible volatility while having the same expected return as your investment is 36%. |
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Term
Standard deviation of a portfolio - What is the standard deviation for the following portfolio? The portfolio consists of 25% and 75% of stocks A and B respectively. The correlation between stock A and B is 0.4. (Round your answer to two decimal digits)
Stocks E[R] Volatility^2 Weight
A 17% 0.0169 0,25
B 13% 0.0361 0,75
Correlation: 0,4
Select one alternative:
0.00%
15.83% - Är korrekt
17.00%
None of the alternatives are correct.
13.00%
2.51% |
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Definition
Standard deviation (= (roten ur variance))
Stock A: Roten ur (0.0169) = 0,13
Stock A: Roten ur (0,0361) = 0,19
Standard deviation formula:
Roten ur ((0,25^2*0,13^2)+
(0,75^2*0,19^2)+
2*0,25*0,75*0,13*0,19*0,4) =
Roten ur: 0.00105625+
0.02030625+
0.003705 =
0,1583
Answer: 15,83% |
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Term
Options - Assume that you purchase 2 call options and 1 put option in the German company Tegernsee & Augsburg GmbH with a time to maturity of 3 months. The exercise price on the call options is SEK 70 and the exercise price on the put option is SEK 75. If the stock’s spot price at maturity is SEK 72, what is the total value of the portfolio at maturity?
Select one alternative:
None of the alternatives are correct.
5
7 - Är korrekt
11
13
9 |
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Definition
Options: | Call | Put |
Quantity: | 2 | 1 |
Time to maturity: | 3| 3 |
Exercise price: | 70 | 75 |
Spot price at maturity: | 72| 72 |
Payoff Call options:
2 * (72 - 70) = 4
Payoff Put options:
1 * (75 - 72) = 3
Total payoff:
4 + 3 = 7
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Term
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 0,1 0,08
Fund B 0,07 0,02
Fund C 0,06 0,03
Risk-free rate: 0,04
What fund should you recommend?
Select one alternative:
B and C
B - korrekt
A
None of the alternatives are correct.
A and B
C |
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Definition
Calculate Sharpe ratio: (Er - Riks-free rate) / Volatility
Fund A: (0,1 - 0,04) / 0,08 = 0,75
Fund B: (0,07 - 0,04) / 0,02 = 1,5
Fund C: (0,06 - 0,04) / 0,03 = 0,6
Answer: Fund B (1,5) has the highest Sharpe ratio. |
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Term
Zero-coupon bond - A zero-coupon bond has face value equal to 1000 and maturity in 18 months. Its yield-to-maturity if expressed as an EAR is equal to 5%. What is the price of this bond?
Select one alternative:
1000,00
1050,00
None of the alternatives are correct
1075,93
929,43 - Är korrekt
952,38 |
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Definition
Provided info:
Face value: 1000
Maturity in months: 18
Maturity in years: 1,5
YTM (EAR): 0,05
Price of the bond:
1000
/
(1 + 0,05)^1,5
=
929,4286409 |
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Term
Enterprise value - A given firm has just presented the following figures corresponding to its current financial report.
EBIT: 300
Depreciation: 30
Increase in NWC: 20
Investments: 10
The applicable tax is 25%. From now on the FCF’s are expected to grow at the industry average of 2% forever. The weighted average cost of capital (WACC) is equal to 10%. What is the enterprise value?
Select one alternative:
2103,75
2250,00
2812,50
3825,00
None of the alternatives is correct!
2868,75 - korrekt |
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Definition
Provided info:
EBIT: 300
Depreciation: 30
Increase in NWC: 20
Investment: 10
FCF (growth industry average rate): 0,02
Tax: 0,25
Weighted Average Cost of Capital WACC: 0,1
FCF:
300 * (1 - 0,025) + 30 - 20 - 10 = 225
Terminal value:
(225 * (1 + 0,02)) / (0,1 - 0,02) = 2868,75
Terminal value = Enterprise value |
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Term
Payback period - You are the owner of a School of languages thinking of placing a sign advertising your business at a central location. The sign will cost 4000. You expect that it will generate additional revenue of 520 per month. The discount rate is 2%. What is the payback period closest to?
Select one alternative:
7,69 months - Är korrekt
10,69 months
None of the alternatives is correct
9,69 months
It cannot be computed with the available information
5,69 months |
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Definition
Provided info:
Cost: 4000
Additional revenue: 520
Discount rate: 0,02
4000 / 520 = 7,692307692
Payback period: 7,692307692 Months |
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Term
Perpetuity - You are thinking about purchasing a financial asset that provides a cash flow of 5384 SEK per year, in perpetuity.
What should be the price of this financial asset, assuming a discount rate of 7.2 percent?
(Answers are rounded to the nearest integer)
Select one alternative:
74778 SEK - Besvarad och korrekt
388 SEK
10768 SEK
748 SEK
None of the other alternatives are correct
5384 SEK |
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Definition
Provided info:
Cashflow per year in perpetuity: 5384 SEK
Discount rate: 0,072 %
5384 / 0,072 = 74777,77778
Present value: 74777,77778 |
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Term
Expected return - In the next year, the economy can enter either a boom, a bust or remain in a normal state with the probabilities stated in the table. An investment has the following returns given the specific states:
Returns Probability
Boom 5% 0.25
Normal 12% 0.50
Bust 31% 0.25
What is the expected return of this investment?
Select one alternative:
None of the other answers is correct
19.75%
16.00%
12.00%
15.00% - Är korrekt
38.25% |
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Definition
Provided info:
Returns | Probability
Boom 5% 0.25
Normal 12% 0.50
Bust 31% 0.25
E(r) = (0,05 * 0,25) + (0,12 * 0,5) + (0,3 * 0,25) = 0,1475
E(r) %: 14,75
Answer: 14,75 % |
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Term
Dividend/stock price - The company ”Vikasjö” announces that it will pay a dividend of 5 SEK/share in one year to its shareholders. An analyst has evaluated the stock and concluded that its cost of equity is equal to 14%. If the current price of the stock of ”Vikasjö” is equal to 30 SEK and the analyst conclusions are correct, what will you expect the stock to sell for in one year (after the dividend is paid)?
Select one alternative:
39,2
34,2
29,2 - Är korrekt
None of the other alternatives are correct!
35,0
20,8 |
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Definition
Provided info:
Dividend per share: 5 SEK
Cost of equity: 0,14 %
Current price: 30 SEK
The expected stock price in one year after the dividend is paid:
30 * (1 + 0,14) = 5 + P1
34,2 = 5 + P1
29,2 = P1
or
30 = 5 + P1 / (1+0,14)
30 * 1.14 = 5 + P1
34.2 = 5 + P1
P1 = 34.2 − 5
P1 = 29,2
Answer: 29, 2 = The expected stock price in one year after the dividend is paid: |
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Term
CAPM - Given the following information, what is the expected return of a stock with a beta of 1.8 assuming that CAPM is correct? The risk-free rate is equal to 5%.
Stock Beta Risk premium
A 0.8 10%
Select one alternative:
17.50%
14.00%
10.00%
5.00%
None of the other alternatives are correct!
27.50% - Är korrekt |
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Definition
Provided info:
Stock: Beta: Risk-premium:
A: 0,8: 0,1:
: 1,8: ?
Risk-free rate: 0,05
First, let's calculate the market risk premium. The risk premium for Stock A can be expressed as:
Risk Premium for Stock A = βA * Market Risk Premium:
10 = 0.8 * Market Risk Premium
Market Risk Premium = 10 / 0,8 = 12.5%
Now, we use the Market Risk Premium to find the expected return of the stock with a beta of 1.8:
Er = 5 + (1.8 * 12.5)
Er = 27.5 |
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Term
APR - Calculate the present value of SEK 5,000 that is received in 12 months, assuming an APR of 10% with quarterly compounding. (Answers rounded to two decimal digits)
Select one alternative:
None of the statements are correct.
5500.00
4878.05
4545.45
4529.75 - Är korrekt
5000.00 |
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Definition
Provided info:
FV: 5000 SEK
Months: 12
Year: 1
APR (quaterly compunding): 0,1 (%)
0,1 / 4 = 0,025
FV / (1+(r/n))^nt = PV
5000 / (1+0,025)^4 = 4529,753224 |
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Term
Equivalent Annual Annuity - A company is considering a project that requires an initial outlay of 2050 SEK. The project will produce a first cash-flow of 500 SEK at the end of year 1 and then the subsequent yearly cash-flows will grow at a rate of 1% per year. The project has a lifespan of 8 years. Suppose that you know that the EAR rate is equal to 3.5%.
What is the EAA of this project? (Answers rounded to two decimal digits)
Select one alternative:
218.70 - Är korrekt
187.92
125.25
0.73
4.10
None of the other alternatives are correct |
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Definition
Provided info:
Initial outlay: 2050 SEK
First Cashflow: 500 SEK
"Subsequent yearly cash-flows" growth rate: 0,01 (%)
Lifespan: 8 years
EAR rate: 0,035 (%)
Step 1: calculate the NPV of the project´s cash flow:
500 / 0,035 - 0.01 = 20000
(1,01/1,035)^8 = 0,822333896
20 000 * (1 - 0,822333896) = 3553,32208
3553,32208 - Initial outlay = 1503,32208
EAA = NPV * r / 1 - (1+0,035)^-8
EAA = (1503 * 0,035) / 1- (1+ 0,035)^-8
Compute the denminator: 1 - (1+0,035)^-8 = 1 - 0,7634 = 0,2366
Compute EAA: (1503,32208 * 0,035) / 0,2366 = 222,3849231
Or
500 / (0,035 - 0,01) = 20 000
20 000 * (1 - (1,01 / 1,035)^8 = 3 553,32208
3553,32208 - 2050 = 1503,32208
EAA = (1503,32208 * 0,035) / (1 - (1 + 0,035)^-8) = 218,6982549 |
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