SIFMjapan - Part One Multiple Choice (60 marks), choose the...

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Part One Multiple Choice (60 marks), choose the best answer for each question 1 perating leverage affects: a. Diversifiable risk b. Nondiversifiable risk c. Cost of capital d. All of the above are correct 2 Currently, in the spot market $1 = 106.45 Japanese yen, 1 Japanese yen = 0.00966 euro, and 1 euro = 9.0606 Mexican pesos. Find out the exchange rate between the U.S. dollar and the Mexican peso? a. $1.00 = 2,222 Mexican pesos b. $1.00 = 9.3171 Mexican pesos c. $1.00 = 0.0556 Mexican peso d. None of the above 3 Which of the following factors are likely to lead to an increase in nominal interest rates? a. Households increase their savings rate. b. Companies see an increase in their production opportunities that leads to an increase in the demand for funds.
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c. There is an increase in expected inflation. d. Statements b and c are correct. 4 A firm has equity financing in the market value amount of $12,000 and debt financing in the market value amount of $4,000. The weighting of debt in its weighted average cost of capital is: a. 15% b. 25% D / (D + E) = $4,000 / ($4,000 + $12,000) = 25% c. 50% d. None of the above 5. You are given the following information regarding Company X and Company Y: . Company X has a higher expected mean return than Company Y. . Company X has a lower standard deviation than Company Y. . Company X has a higher beta than Company Y. . Which of the following statement is correct? a. Company X has a lower coefficient of variation than Company Y. b. Company X has more company-specific risk than Company Y. c. Company X is a better stock to buy than Company Y.
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d. All of the above. 6.Stock A has a beta of 1.5 and Stock B has a beta of 0.5. Which of the following statements must be true about these securities? (Assume the market is in equilibrium.) a. When held in isolation, Stock A has greater risk than Stock B. b. Stock B would be a more desirable addition to a portfolio than Stock A. c. Stock A would be a more desirable addition to a portfolio than Stock B. d. The expected return on Stock A will be greater than that on Stock B. 7. Which of the following statements is false? a. A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio. b. A two-stock portfolio will always have a lower beta than a one-stock portfolio. c. If portfolios are formed by randomly selecting stocks, a 10-stock portfolio will always have a lower beta than a one-stock portfolio. d. All of the above. 8. Stock X has a beta of 0.7 and Stock Y has a beta of 1.3. The standard deviation of each stock’s returns is 20 percent. The correlation coefficient is zero.
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Portfolio P has 50 percent of its wealth invested in Stock X and the other 50 percent is invested in Stock Y. Given this information, which of the following statements is most correct? a.
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This note was uploaded on 10/20/2008 for the course FIN BUSFIN taught by Professor Lee during the Summer '07 term at 충북대학교.

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SIFMjapan - Part One Multiple Choice (60 marks), choose the...

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