MGT 181 Final Exam Questions with Correct Answers Latest Update 2025/2026
absolute PPP (purchasing power parity) - Answers price of item should be same in real terms
regardless of currency used to purchase it
trans costs 0
no barriers o trade (taxes, tariffs, etc)
no difference in commodity between locations
RARELY HOLDS IN PRACTICE
after tax cost debt - Answers RD(1-tc)
arbitrage opportunity - Answers borrow 100 at 4%
buy $100(0.8 E/$)=81.6 Euro and invest at 2% for 1 year
in 1 year
receive 80(1.02)=81.6 E and convert to US
116.57 and repay loan
$100(1.04)=104
profit= $12.57 risk free
beta coefficient - Answers = 1 --> asset has same systematic risk as overall market
< 1 --> asset has less systematic risk than overall marker
> 1 --> asset has more systematic risk than overall market
, Capital Asset pricing Model (CAPM) - Answers From the SML, the expected return on asset (i)
can be written: E(Ri)=Rf + [E(RM)- Rf] x Beta
risk free + beta (market - risk-free)
carry trade - Answers borrow low yielding currencies and invest in high yielding currencies
conglomerate - Answers firms are unrelated
consideration - Answers cash or securities offered to target firm in acquisition
cost of debt - Answers required return on company's debt
cost of long term or bonds
best to compute yield to maturity
use current rates to issue new debt
cost of equity (concepts) - Answers return required by equity investors (pertains to risk on cash
flows from firm)
-business risk
-financial risk
two major methods to determine cost of equity
-dividend growth model
SML or CAPM
diversifiable risk - Answers risk that can be eliminated by combining assets into a portfolio
aka unsystematic, unique, asset-specific risk
diversification - Answers greatly reduce variability of returns without reducing expected returns
absolute PPP (purchasing power parity) - Answers price of item should be same in real terms
regardless of currency used to purchase it
trans costs 0
no barriers o trade (taxes, tariffs, etc)
no difference in commodity between locations
RARELY HOLDS IN PRACTICE
after tax cost debt - Answers RD(1-tc)
arbitrage opportunity - Answers borrow 100 at 4%
buy $100(0.8 E/$)=81.6 Euro and invest at 2% for 1 year
in 1 year
receive 80(1.02)=81.6 E and convert to US
116.57 and repay loan
$100(1.04)=104
profit= $12.57 risk free
beta coefficient - Answers = 1 --> asset has same systematic risk as overall market
< 1 --> asset has less systematic risk than overall marker
> 1 --> asset has more systematic risk than overall market
, Capital Asset pricing Model (CAPM) - Answers From the SML, the expected return on asset (i)
can be written: E(Ri)=Rf + [E(RM)- Rf] x Beta
risk free + beta (market - risk-free)
carry trade - Answers borrow low yielding currencies and invest in high yielding currencies
conglomerate - Answers firms are unrelated
consideration - Answers cash or securities offered to target firm in acquisition
cost of debt - Answers required return on company's debt
cost of long term or bonds
best to compute yield to maturity
use current rates to issue new debt
cost of equity (concepts) - Answers return required by equity investors (pertains to risk on cash
flows from firm)
-business risk
-financial risk
two major methods to determine cost of equity
-dividend growth model
SML or CAPM
diversifiable risk - Answers risk that can be eliminated by combining assets into a portfolio
aka unsystematic, unique, asset-specific risk
diversification - Answers greatly reduce variability of returns without reducing expected returns
