IBA Finance Additional Practice Questions
International Business Administration at VU Amsterdam
Course coordinator: M.B.J. Schauten
Course code: E_IBA2_FIN
Period 2
Exam date: 22-12-2022
Academic year: 2022-2023
Additional Practice Questions Finance
This document contains a selection of questions that derive from old exams, the course
material, and covers most topics. Although this file is a suitable test for preparing yourself for
the real exam, please note that this is the basic version. Please have a look at the other offers.
This document is created by M.R.H. Bout, 2646780. Please respect my effort and attempt to
make a comprehensive summary. Feel free to contact me for feedback or additional
comments via .
This exam bundle is subject to copyright under the Dutch Copyright Act.
I am the copyright holder of this bundle. Publication, in whole or in part, or reproduction of
the contents of this exam bundle, in whatever form, is prohibited without the prior, written,
and explicit permission of Matthijs Bout.
, Go Back Button
Index
Week 1 Basic Concepts & Hirshleifer Model .......................................................................... 3
Week 2 – Investment decision rules and capital budgeting ..................................................... 6
Week 3 – Valuing Bonds and Stocks ........................................................................................ 8
Week 4 – MV Analysis and Portfolio Theory......................................................................... 10
Week 6 – EMH and M&A....................................................................................................... 16
Solutions .................................................................................................................................. 18
Solutions Week 1 ...............................................................................................................................18
Solutions Week 2 – Investment Decision Rules and Capital Budgeting............................................19
Solutions Week 3 ...............................................................................................................................21
Solutions Week 5 ...............................................................................................................................26
Solutions Week 6 ...............................................................................................................................27
2
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Week 1 – Basic Concepts & Hirshleifer Model
Q1.1
Assume a world according to the Hirshleifer model. The income of Brouwers at t = 0 and t =
1 (CF0 and CF1) is €61,20 and €71,40 respectively. The risk-free interest rate is 2,00%. At t
= 1, Brouwers pays €0,50 in interest. At t = 1 the proceeds of the real investment projects
(OF) are €81,60. At t = 0 the consumption of Brouwers (C0) is €65,00. Consider the figure
below (not drawn to scale).
Question: The net present value of the real investment projects is closest to
A) €21,20
B) €24,20
C) €58,80
D) €62,80
Q1.2 Assume a world according to the Hirshleifer model. The income of Charlotte at t = 0
and t = 1 (CF0 and CF1) is €100,00 and €51,00 respectively. The risk-free interest rate is
2,00%. At t = 0 Charlotte borrows €40,00 and invests €20,00 (EA). At t = 1 the consumption
by Charlotte is €204,00 (C1). Consider the figure from 1.1 (not drawn to scale).
Question: At t = 1 the proceeds from the real investment projects (OF) are closest to
A) €193,80
B) €194,80
C) €195,80
D) €196,80
Q1.3 Assume a world according to the Hirshleifer model. Wilfred owns a barbershop in
Amsterdam from which he earns €250,00 at t = 0 (CF0) and €306,00 at t = 1 (CF1). Wilfred
wants to expand and invests €500,00 in a new shop in Hilversum at t = 0. The expected
proceeds at t = 1 are €765,00. At t = 1 Wilfred consumes €816,00 (C1). The risk-free interest
rate is 2,00%. Consider the figure of 1.1 (Not drawn to scale).
Question: the consumption by Wilfred at t=0 (C0) is closest to
A) €0,00
B) €51,00
C) €100,00
D) €102,00
Q1.4 Assume a world according to the Hirshleifer model. The income of Sarah at t = 0 and t
= 1 is equal to €50,00 (CF0) and €80,00 (CF1) respectively. At t = 0 Sarah invests €60,00 in
real projects and consumes nothing (C0). At t = 1 Sarah consumes €141,20 (C1). The risk
free interest rate is 2,00%.
At t = 1 the proceeds of the investment in real projects is closest to
A) €71,40
B) €14,60
C) €70,40
3
International Business Administration at VU Amsterdam
Course coordinator: M.B.J. Schauten
Course code: E_IBA2_FIN
Period 2
Exam date: 22-12-2022
Academic year: 2022-2023
Additional Practice Questions Finance
This document contains a selection of questions that derive from old exams, the course
material, and covers most topics. Although this file is a suitable test for preparing yourself for
the real exam, please note that this is the basic version. Please have a look at the other offers.
This document is created by M.R.H. Bout, 2646780. Please respect my effort and attempt to
make a comprehensive summary. Feel free to contact me for feedback or additional
comments via .
This exam bundle is subject to copyright under the Dutch Copyright Act.
I am the copyright holder of this bundle. Publication, in whole or in part, or reproduction of
the contents of this exam bundle, in whatever form, is prohibited without the prior, written,
and explicit permission of Matthijs Bout.
, Go Back Button
Index
Week 1 Basic Concepts & Hirshleifer Model .......................................................................... 3
Week 2 – Investment decision rules and capital budgeting ..................................................... 6
Week 3 – Valuing Bonds and Stocks ........................................................................................ 8
Week 4 – MV Analysis and Portfolio Theory......................................................................... 10
Week 6 – EMH and M&A....................................................................................................... 16
Solutions .................................................................................................................................. 18
Solutions Week 1 ...............................................................................................................................18
Solutions Week 2 – Investment Decision Rules and Capital Budgeting............................................19
Solutions Week 3 ...............................................................................................................................21
Solutions Week 5 ...............................................................................................................................26
Solutions Week 6 ...............................................................................................................................27
2
, Go Back Button
Week 1 – Basic Concepts & Hirshleifer Model
Q1.1
Assume a world according to the Hirshleifer model. The income of Brouwers at t = 0 and t =
1 (CF0 and CF1) is €61,20 and €71,40 respectively. The risk-free interest rate is 2,00%. At t
= 1, Brouwers pays €0,50 in interest. At t = 1 the proceeds of the real investment projects
(OF) are €81,60. At t = 0 the consumption of Brouwers (C0) is €65,00. Consider the figure
below (not drawn to scale).
Question: The net present value of the real investment projects is closest to
A) €21,20
B) €24,20
C) €58,80
D) €62,80
Q1.2 Assume a world according to the Hirshleifer model. The income of Charlotte at t = 0
and t = 1 (CF0 and CF1) is €100,00 and €51,00 respectively. The risk-free interest rate is
2,00%. At t = 0 Charlotte borrows €40,00 and invests €20,00 (EA). At t = 1 the consumption
by Charlotte is €204,00 (C1). Consider the figure from 1.1 (not drawn to scale).
Question: At t = 1 the proceeds from the real investment projects (OF) are closest to
A) €193,80
B) €194,80
C) €195,80
D) €196,80
Q1.3 Assume a world according to the Hirshleifer model. Wilfred owns a barbershop in
Amsterdam from which he earns €250,00 at t = 0 (CF0) and €306,00 at t = 1 (CF1). Wilfred
wants to expand and invests €500,00 in a new shop in Hilversum at t = 0. The expected
proceeds at t = 1 are €765,00. At t = 1 Wilfred consumes €816,00 (C1). The risk-free interest
rate is 2,00%. Consider the figure of 1.1 (Not drawn to scale).
Question: the consumption by Wilfred at t=0 (C0) is closest to
A) €0,00
B) €51,00
C) €100,00
D) €102,00
Q1.4 Assume a world according to the Hirshleifer model. The income of Sarah at t = 0 and t
= 1 is equal to €50,00 (CF0) and €80,00 (CF1) respectively. At t = 0 Sarah invests €60,00 in
real projects and consumes nothing (C0). At t = 1 Sarah consumes €141,20 (C1). The risk
free interest rate is 2,00%.
At t = 1 the proceeds of the investment in real projects is closest to
A) €71,40
B) €14,60
C) €70,40
3
