Fight Finance

(a) Fall, fall.

(b) Fall, rises.

(c) Rise, fall.

(d) Rise, rise.

(e) Remain unchanged, remain unchanged.

(a) CapEx is added in the Net Income (NI) equation so it needs subtracting in the CFFA equation.

(b) CapEx is a financing cash flow that needs to be ignored. Therefore it should be subtracted.

(c) CapEx is not a cash flow, it's a non-cash expense made up by accountants that needs to be subtracted.

(d) CapEx is subtracted to account for the net cash spent on capital assets.

(e) CapEx is subtracted because it's too hard to predict, therefore we exclude it.

(a) The firm's enterprise value is less than its total asset value.

(b) The firm's enterprise value beta is higher than the total asset value beta.

(c) The enterprise value's weighted average cost of capital (WACC) is higher than the total asset value's WACC.

(d) The enterprise value divided by the number of shares equals the share price.

(e) The total asset value less the market value of debt, all divided by the number of shares, equals the share price.

(a) Systematic risk increases.

(b) Idiosyncratic risk increases.

(c) Total risk increases.

(d) Systematic risk decreases.

(e) Idiosyncratic risk decreases.

(a) Daily trading volume is 3 contracts, open interest is 3 contracts.

(b) Daily trading volume is 3 contracts, open interest is 2 contracts.

(c) Daily trading volume is 3 contracts, open interest is 1 contract.

(d) Daily trading volume is 2 contracts, open interest is 3 contracts.

(e) Daily trading volume is 2 contracts, open interest is 2 contracts.

(a) Competition: Firms in competitive markets earn zero economic profit.

(b) Opportunity cost: The cost of the next best alternative foregone should be subtracted.

(c) Separation of the investment and financing decisions.

(d) Diversification: Risks can often be reduced by pooling them together.

(e) Sunk costs: Costs that cannot be recouped should be ignored.

(a) Nil income cash flow.

(b) Real total return of zero.

(c) Real capital return equal to the inflation rate.

(d) Real income return of zero.

(e) Nominal income return of zero.

(b) Mrs Green would prefer to invest her wealth in a single stock rather than a well diversified portfolio of stocks, assuming that all stocks had the same total risk and return.

(c) The popularity of insurance only makes sense if people are similar to Mr Blue.

(d) CAPM theory only makes sense if people are similar to Miss Red.

(e) The popularity of casino gambling and lottery tickets only make sense if people are similar to Mrs Green.

(a) Historical capital return last year was negative ##\left( \dfrac{P_0 - P_{-1}}{P_{-1}} < 0 \right)##.

(b) Historical dividend yield last year was negative ##\left( \dfrac{C_0}{P_{-1}} < 0 \right)##.

(c) Expected future capital return next year is positive ##\left( \dfrac{P_1 - P_0}{P_0} > 0 \right)##.

(d) Expected future dividend yield next year is positive ##\left( \dfrac{C_1}{P_0} > 0 \right)##.

(e) Expected future total return next year is positive ##\left( \dfrac{P_1 - P_0 + C_1}{P_0} > 0 \right)##.

(a) To buy consumables like food and clothes at the shops.

(b) For a ‘rainy day’ such as becoming sick and having to pay for a doctor.

(c) To preserve their wealth, such as keeping cash under the bed, in the piggy bank or in a safe.

(d) To invest in assets such as houses, shares or bonds if they become cheap.

(e) To gamble and waste on the poker machines at the casino.