1. The relationship between nominal rates, real rates, and inflation is known as the:
A. Miller and Modigliani theorem.
B. Fisher effect.
C. Gordon growth model.
D. term structure of interest rates.
E. interest rate risk premium.
Look at PowerPoints and b

Finn 3063- Exam 2 Review
Chapter 7- Capital Asset Pricing Model
1. CAPM Assumptions
Individual investors are price takers
o Individuals action has no impact on stock prices
Single-period investment horizon
o Investors are rational mean-variance optimize

Investments Review- Exam 2 (Questions)
Chapter 7:
1. Market risk premium is 8%, risk free rate is 3%, security x and y have beta of 1.25 and 0.6,
what is the expected return of each based on CAPM?
2. E(rM)
S
rf
= 14%
= 1.5%
= 5%
If you believe the stock w

Risk, Cost of Capital, and
Capital Budgeting
Chapter 14
1
Chapter Outline
14.1 The Cost of Equity Capital
14.2 Estimation of Beta
14.3 Determinants of Beta
14.4 Extensions of the Basic Model
14.5 Weighted Average Cost of
Capital
2
14.1 The Cost of Equity

1. The relationship between nominal rates, real rates, and inflation is known as the:
A. Miller and Modigliani theorem.
B. Fisher effect.
C. Gordon growth model.
D. term structure of interest rates.
E. interest rate risk premium.
2. Webster & Moore paid $

FINN3603 Exam 1 Formula Sheet
PV
1. Present value of annuity:
C
1
1
r (1 r )T
Where PV is present value, C is the annuity (level payment in each period), r is the
appropriate discount rate, and T is number of periods.
2. Present value of growing annuit

Risk, Cost of Capital, and
Capital Budgeting
Chapter 13
1
Chapter Outline
13.1 The Cost of Equity Capital
13.2 Estimation of Beta
13.3 Determinants of Beta
13.4 Extensions of the Basic Model
13.5 Weighted Average Cost of
Capital
2
13.1 The Cost of Equity