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Question 285  covariance, portfolio risk

Two risky stocks A and B comprise an equal-weighted portfolio. The correlation between the stocks' returns is 70%.

If the variance of stock A's returns increases but the:

  • Prices and expected returns of each stock stays the same,
  • Variance of stock B's returns stays the same,
  • Correlation of returns between the stocks stays the same.

Which of the following statements is NOT correct?



Question 364  PE ratio, Multiples valuation

Which firms tend to have high forward-looking price-earnings (PE) ratios?



Question 393  real option, option

A timing option is best modeled as a or option?


Question 444  investment decision, corporate financial decision theory

The investment decision primarily affects which part of a business?



Question 655  capital budgeting, opportunity cost, sunk cost

The 'time value of money' is most closely related to which of the following concepts?



Question 678  option, option profit, no explanation

Which of the below formulas gives the profit ##(\pi)## from being short a put option? Let the underlying asset price at maturity be ##S_T##, the exercise price be ##X_T## and the option price be ##f_{LP,0}##. Note that ##S_T##, ##X_T## and ##f_{LP,0}## are all positive numbers.



Question 685  future, arbitrage, no explanation

An equity index stands at 100 points and the one year equity futures price is 107.

The equity index is expected to have a dividend yield of 3% pa. Assume that investors are risk-neutral so their total required return on the shares is the same as the risk free Treasury bond yield which is 10% pa. Both are given as discrete effective annual rates.

Assuming that the equity index is fairly priced, an arbitrageur would recognise that the equity futures are:



Question 724  return distribution, mean and median returns

If a stock's future expected continuously compounded annual returns are normally distributed, what will be bigger, the stock's or continuously compounded annual return? Or would you expect them to be ?


Question 816  expected and historical returns

If future expected cash flows rise, and future required returns remain the same, then prices will , or remain the ?


Question 862  yield curve, bond pricing, bill pricing, monetary policy, no explanation

Refer to the below graph when answering the questions.

Graph

Which of the following statements is NOT correct?