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Question 11  bond pricing

For a price of $100, Vera will sell you a 2 year bond paying semi-annual coupons of 10% pa. The face value of the bond is $100. Other bonds with similar risk, maturity and coupon characteristics trade at a yield of 8% pa.

Would you like to her bond or politely ?


Question 368  interest tax shield, CFFA

A method commonly seen in textbooks for calculating a levered firm's free cash flow (FFCF, or CFFA) is the following:

###\begin{aligned} FFCF &= (Rev - COGS - Depr - FC - IntExp)(1-t_c) + \\ &\space\space\space+ Depr - CapEx -\Delta NWC + IntExp(1-t_c) \\ \end{aligned}###
Does this annual FFCF or the annual interest tax shield?


Question 369  interest tax shield, CFFA

One formula for calculating a levered firm's free cash flow (FFCF, or CFFA) is to use earnings before interest and tax (EBIT).

###\begin{aligned} FFCF &= (EBIT)(1-t_c) + Depr - CapEx -\Delta NWC + IntExp.t_c \\ &= (Rev - COGS - Depr - FC)(1-t_c) + Depr - CapEx -\Delta NWC + IntExp.t_c \\ \end{aligned} \\###
Does this annual FFCF or the annual interest tax shield?


Question 698  utility, risk aversion, utility function

Mr Blue, Miss Red and Mrs Green are people with different utility functions. Which of the statements about the 3 utility functions is NOT correct?

Utility curves



Question 700  utility, risk aversion, utility function, gamble

Mr Blue, Miss Red and Mrs Green are people with different utility functions.

Each person has $50 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $50. Each player can flip a coin and if they flip heads, they receive $50. If they flip tails then they will lose $50. Which of the following statements is NOT correct?

Utility curves



Question 714  return distribution, no explanation

Which of the following quantities is commonly assumed to be normally distributed?



Question 733  DDM, income and capital returns

A share’s current price is $60. It’s expected to pay a dividend of $1.50 in one year. The growth rate of the dividend is 0.5% pa and the stock’s required total return is 3% pa. The stock’s price can be modeled using the dividend discount model (DDM):

##P_0=\dfrac{C_1}{r-g}##

Which of the following methods is NOT equal to the stock’s expected price in one year and six months (t=1.5 years)? Note that the symbolic formulas shown in each line below do equal the formulas with numbers. The formula is just repeated with symbols and then numbers in case it helps you to identify the incorrect statement more quickly.



Question 809  Markowitz portfolio theory, CAPM, Jensens alpha, CML, systematic and idiosyncratic risk

A graph of assets’ expected returns ##(\mu)## versus standard deviations ##(\sigma)## is given in the graph below. The CML is the capital market line.

Image of CML graph

Which of the following statements about this graph, Markowitz portfolio theory and the Capital Asset Pricing Model (CAPM) theory is NOT correct?



Question 922  Stutzer portfolio performance indicator, Sharpe ratio, no explanation

Stutzer’s Portfolio Performance Indicator (PPI) ranks portfolios similarly to what other performance metric, assuming that the portfolios’ continuously compounded returns (LGDR’s) are normally distributed?



Question 945  stock split, bonus issue, stock dividend

A 3-for-2 stock split is equivalent to a 1-for-2 bonus issue or a 200% stock dividend. or ?



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