Chapter 11: An Alternative View of Risk and Return: The Arbitrage Pricing Theory
11.1
Real GNP was higher than anticipated. Since returns are positively related to the
level of GNP, returns should rise based on this factor.
Inflation was exactly the amoun
Discrete Probability
A sample of 2,500 people was asked how many cups of coffee they drink in the morning. You are given
the following sample information.
Cups of Coffee
0
Frequency
700
1
900
2
600
3
300
2,500
The variance of the number of cups of coffee
Question 1
5 out of 5 points
The nominal rate of return on the bonds of Steve's Boats is 7.75%. The real rate of
return is 4.4%. What is the rate of inflation?
Selected
Answer:
3.21
%
Question 2
5 out of 5 points
A 5-year bond with 8% coupon rate and $10
Question 1
2 out of 2 points
A friendly suitor that a target firm turns to as an alternative to a hostile bidder is
called a:
Selected
Answer:
white
knight.
Question 2
2 out of 2 points
A proposed acquisition may create synergy by:
I. increasing the mark
Question 1
2 out of 2 points
Hick Mining is evaluating when to open a gold mine. The mine has 48,800 ounces of
gold left that can be mined, and mining operations will produce 6,100 ounces per
year. The required return on the gold mine is 11 percent, and
Practice Exam I
Note: You are NOT expected to see the same questions in this practice exam. Though some questions are
short-answer questions, during the real exam, it will be in the form of multiple-choice questions ONLY.
1. It will cost $2,600 to acquire
1. The statement of cash flows is one of the most important things to analyze a company for those
in finance as it deals with the information of the cash inflows and outflows of the firm. Utilizing
Riverview Community Hospitals statement of cash flows (al
asset beta = equity beta / (1+(1-taxrate)*(debt/equity ratio)
In the equation R = R+ U, the three symbols stand for:
actual total return, expected return, and unexpected return
The acronym APT stands for:
Arbitrage Pricing Theory
The acronym CAPM stands f
Capital budgeting
The process of evaluating and selecting long term investments that
are consistent with the firm's goal of maximizing owners's wealth.
capital expenditure
An outlay of funds by the firm that is expected to produce benefits
over a period o
Relevant Cash Flows
The incremental cash outflow (investment) and resulting
subsequent inflows associated with a proposed capital expenditure.
Incremental Cash Flows
The additional cash flows (outflows or inflows) expected to result
from a proposed capita
Shareholder wealth
Cash dividend and share repurchase have same
effect on _.
Increase
If cost of debt < earnings yield, share repurchase
with borrowed funds will _.
Decrease
If cost of debt > earnings yield, share repurchase
with borrowed funds will _.
In
Present Value (PV)
Future Value (FV) * 1/(1+r)^t, r= interest rate
Net Present Value (NPV)
Co + (C1/ (1+R)] + C2/ (1+R)^2].
Accept a project if NPV > 1
= - cost + PV
Future Value
FV = PV (1+ r)^t, FV = PV (1 + r/m)^nm, n = # of years, m = # of
times in a
Group Member Evaluation Form
CIDM 6310, Fall 2014
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PORTFOLIO CONCEPTS
MEANVARIANCE ANALYSIS
Meanvariance analysis is the fundamental implementation of modern portfolio
theory, and describes the optimal allocation of assets between risky and risk-free
assets when the investor knows the expected return and