MBA 5113 Exam 3| Brand New
Exam Questions with 100% Correct
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what is the risk-free rate? - Answer✅✅Treasury bill
principle of finance takeaways - Answer✅✅cash flow (cash is king, we measure
cash, not depreciation or sales)
money has time value (rather have a dollar today than a dollar in the future)
risk requires reward (don't take the greater risk unless a greater reward is expected)
agency problems (principles hire agents)
agency costs - Answer✅✅costs borne by stockholders to maintain a corporate
governance structure that minimizes agency problems and contributes to the
maximization of shareholder wealth
how to measure risk - Answer✅✅standard deviation
nominal average annual returns- treasury bill - Answer✅✅3.4% (or a little more
than 3%)
nominal average annual returns- inflation - Answer✅✅2.9% (or about 3%)
, nominal average annual returns- bonds - Answer✅✅Bonds in general about 6%
(Intermediate gov bonds: 5.3% Corporate bonds: 6.3%)
nominal average annual returns- large companies - Answer✅✅12%
nominal average annual returns- small companies - Answer✅✅16.6% (or about
17%)
risk - Answer✅✅potential variability in future cash flows
(The wider the range of possible future events, the greater the risk)
systematic diversification (market risk) - Answer✅✅risk that affects all firms
(i.e., tax rate changes, war)
unsystematic diversification (company-unique risk) - Answer✅✅risk that affects
only a specific firm (i.e., labor strikes, CEO change) (steve jobs dying affected apple)
which type of risk can be eliminated or reduced through effective diversification -
Answer✅✅unsystematic risk (investing in a broad portfolio of companies)
diversification - Answer✅✅spreading out investments to reduce risk
(holding multiple assets or creating a portfolio of stocks)
correlation and diversification - Answer✅✅pick assets that have a negative or low
positive correlation to attain diversification benefits
two stocks are perfectly POSITIVELY correlated, diversification - Answer✅✅has NO
effect on the risk
two stocks are perfectly NEGATIVELY correlated, diversification - Answer✅✅has
HUGE effect on the risk
(the portfolio is perfectly diversified)
Beta (what does it measure) - Answer✅✅Slope of the avg relationship between a
stock's returns and those of the market
Beta- No systematic risk - Answer✅✅beta of 0
Beta- Typical systematic risk - Answer✅✅beta of 1
Beta- Great systematic risk - Answer✅✅beta of larger than 1
beta of +/- 2.0 suggests - Answer✅✅twice as responsive as the market
(unlikely)
(twice as volatile, can be super good or super bad)
beta of +/- 1.0 suggests - Answer✅✅same response as the market
Exam Questions with 100% Correct
Clear Answers| All Graded
A+|Latest Premium Update|100%
Guaranteed Success.
what is the risk-free rate? - Answer✅✅Treasury bill
principle of finance takeaways - Answer✅✅cash flow (cash is king, we measure
cash, not depreciation or sales)
money has time value (rather have a dollar today than a dollar in the future)
risk requires reward (don't take the greater risk unless a greater reward is expected)
agency problems (principles hire agents)
agency costs - Answer✅✅costs borne by stockholders to maintain a corporate
governance structure that minimizes agency problems and contributes to the
maximization of shareholder wealth
how to measure risk - Answer✅✅standard deviation
nominal average annual returns- treasury bill - Answer✅✅3.4% (or a little more
than 3%)
nominal average annual returns- inflation - Answer✅✅2.9% (or about 3%)
, nominal average annual returns- bonds - Answer✅✅Bonds in general about 6%
(Intermediate gov bonds: 5.3% Corporate bonds: 6.3%)
nominal average annual returns- large companies - Answer✅✅12%
nominal average annual returns- small companies - Answer✅✅16.6% (or about
17%)
risk - Answer✅✅potential variability in future cash flows
(The wider the range of possible future events, the greater the risk)
systematic diversification (market risk) - Answer✅✅risk that affects all firms
(i.e., tax rate changes, war)
unsystematic diversification (company-unique risk) - Answer✅✅risk that affects
only a specific firm (i.e., labor strikes, CEO change) (steve jobs dying affected apple)
which type of risk can be eliminated or reduced through effective diversification -
Answer✅✅unsystematic risk (investing in a broad portfolio of companies)
diversification - Answer✅✅spreading out investments to reduce risk
(holding multiple assets or creating a portfolio of stocks)
correlation and diversification - Answer✅✅pick assets that have a negative or low
positive correlation to attain diversification benefits
two stocks are perfectly POSITIVELY correlated, diversification - Answer✅✅has NO
effect on the risk
two stocks are perfectly NEGATIVELY correlated, diversification - Answer✅✅has
HUGE effect on the risk
(the portfolio is perfectly diversified)
Beta (what does it measure) - Answer✅✅Slope of the avg relationship between a
stock's returns and those of the market
Beta- No systematic risk - Answer✅✅beta of 0
Beta- Typical systematic risk - Answer✅✅beta of 1
Beta- Great systematic risk - Answer✅✅beta of larger than 1
beta of +/- 2.0 suggests - Answer✅✅twice as responsive as the market
(unlikely)
(twice as volatile, can be super good or super bad)
beta of +/- 1.0 suggests - Answer✅✅same response as the market
