Fight Finance

(a) Idiosyncratic risk.

(b) Systematic risk.

(c) Both idiosyncratic and systematic risk.

(d) Market risk.

(e) Beta risk.

(a) The debt-to-assets (D/V) ratio will increase.

(b) The debt-to-equity ratio (D/E) will increase.

(c) Firm value is likely to have increased due to the higher amount of interest tax shields, assuming that there will not be any costs of financial distress.

(d) The company's after-tax WACC is likely to stay the same.

(e) The company's before-tax WACC is likely to stay the same.

(a) Common equity in a listed public mining extraction company that will cease operations, wind up, and return all capital to shareholders in one year when its sole gold mine becomes depleted.

(b) Common equity in a small private owner-operated mining services company whose main asset is its sole tanker truck which delivers fuel to mines. The firm's shares are 100% owned by Bob, the driver of the tanker truck.

(c) Common equity in a large listed public company in the banking industry.

(d) Residential apartment real estate.

(e) Commercial warehouse real estate.

(a) Debt coupon rate.

(b) Required return on debt.

(c) Total return on debt.

(d) Opportunity cost of debt.

(e) Cost of debt capital.

In a takeover deal where the offer is 100% scrip (shares), the merged firm's number of shares will be equal to the acquirer firm's original number of shares. or ?

(a) Capital gains tax.

(b) Explicit transaction costs such as brokerage fees.

(c) Implicit transaction costs such as bid-ask spreads.

(d) Portfolio rebalancing.

(e) Time wasted on researching whether it's better to buy or sell.

(a) 0% pa

(b) 3.5% pa

(c) 4% pa

(d) 4.5% pa

(e) 5% pa

(a) Mr Blue's expected utility of wealth from gambling is 7.5 while refusing is 6.25. So the gamble makes him more happy.

(b) Miss Red's expected utility of wealth from gambling is 7.5 and refusing is also 7.5. This is why she is indifferent.

(c) Mr Blue's certainty equivalent of the risky gamble is $70.71. So he would pay to take part in the gamble.

(d) Miss Red's certainty equivalent of the risky gamble is $50.

(e) Mrs Green's certainty equivalent of the risky gamble is $70.71. She would enjoy taking part in the gamble.

(a) Area A contains ideal portfolios but unfortunately these portfolios are unattainable.

(b) Area B portfolios are only attainable if investors can borrow at the risk free rate, meaning that they can risklessly short sell government bonds and only pay the risk free rate to do so.

(c) Area C contains all individual risky assets and portfolios of those risky assets.

(d) Area D portfolios are only attainable if investors can borrow at the risk free rate, meaning that they can risklessly short sell government bonds and only pay the risk free rate to do so, similarly to Area B.

(e) Area E contains unattainable portfolios.

(a) Low current ratios.

(b) Low interest coverage ratios.

(c) High quick ratios.

(d) High debt-to-assets ratios.

(e) High amounts of leverage.