Question 1 In addition to the market-risk premium and a firm-size factor the Fama and French model adds Question 2 Consider an asset that currently plots below the security market line, Question 3

1. FIN 405 Quiz 4
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Question 1
In addition to the market-risk premium and a firm-size factor the Fama
and French model adds
Question 2
Consider an asset that currently plots below the security market line,
Question 3
In equilibrium, if all investors will hold some combination of the market
portfolio and the risk-free asset (according to the CAPM). An asset with
higher variance and lower expected return than what could be obtained
on the CML can survive:
Question 4
The __________ tells us the composition of the optimal portfolio from a
theoretical standpoint.

2. Question 5
The __________ argues that stock returns are best explained by a three-
factor model.
Question 6
When its returns are regressed on the market’s, a stock with a high beta
will have a __________ term in the regression.
Question 7
According to the CAPM, the lower a security's beta, the __________ its
exposure to systematic risk and the __________ its expected return.
Question 8
Empirical tests have raised concerns about the CAPM, including:
Question 9
The __________ quantifies the relationship between the expected return
and standard deviation for portfolios consisting of the risk-free asset and
the optimal risky portfolio.
Question 10

3. A portfolio is __________ if it offers the highest expected return among
the group of portfolios with equal or less volatility.
Question 11
What should you do when calculating the IRR of and investment and
generate multiple IRRs?
Question 12
In practice, firms and capital budgeting rules,
Question 13
When a firm regularly undertakes projects with positive NPVs, its stock
price will rise because:
Question 14
An advantage of the NPV rule over the IRR is:
Question 15
What would shareholders prefer?
Question 16
Britney is evaluating capital investments for three firms. The first firm
has an unlimited capital budget and is looking at four independent

4. projects. The second firm has several perfectly divisible potential
projects, but faces capital rationing. The third firm is trying to decide
between mutually exclusive projects. The best capital budgeting
techniques for these situations would be __________, __________, and
__________, respectively.
Question 17
Conflicts between two mutually exclusive projects with greatly differing
cash flow timing where the NPV method chooses one project but the
IRR method chooses the other:
Question 18
When using IRR, NPV, or PI in capital budgeting:
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FIN 405 Quiz 6
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Question 1

5. __________ means that markets channel resources to their most
productive uses.
Question 2
According to behaviorists, noise traders affect prices in financial
markets by:
Question 3
__________ determines whether markets produce outputs at the lowest
possible cost.
Question 4
For technical analysis, based on patterns of historical prices, to have
value, ______ form of market efficiency must be violated.
Question 5
Shawna is interested in mutual fund investments. Over the last ten years,
the alphas of three funds that Shawna is considering were –0.2, 0, and
0.8. According to the EMH:
Question 6
The January effect is very sensitive to the choice of __________ used in
the test.
Question 7

6. Event studies are designed to test:
Question 8
In markets characterized by __________, asset prices reflect all
information, public and private.
Question 9
If financial markets are semistrong-form efficient, asset prices will
incorporate __________; however, if financial markets are strong-form
efficient, asset prices will reflect __________.
Question 10
According to empirical studies, firms tend to split their shares ________
earning above market returns and investors who buy firms after stocks
split earn _______ market returns
Question 11
The phrase “residual claimant” is often applied to
Question 12
What best describes the ownership concentration of firms in common
law countries?
Question 13

7. Which of the following legal traditions offers the weakest protection to
outside investors?
Question 14
Callable bonds allow the issuing entity the opportunity to retire the issue
prior to maturity. When is a bond most likely to be called?
Question 15
What does LIBOR stand for?
Question 16
Which of the following legal traditions offers the greatest protection to
outside investors?
Question 17
In the early 1990s who accounted for the majority of acquisition
activity?
Question 18
When CFOs were asked to indicate the relative importance when
making a financing decision, the most important factor was
Question 19

8. The dominant source of financing in the United States is
Question 20
Jessica is a current stockholder in Have-it-all Inc. Recently, the firm
announced a dividend increase of $0.10 per share as well as a new
security offering. A plausible explanation for Have-it-all's actions would
be:
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FIN 405 Quiz Week 5 ch 8-9
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Question 1
When a U.S. firm uses accelerated depreciation for tax purposes and
straight-line depreciation for financial reporting:
Question 2

9. When evaluating a firm with excess capacity, which of the following
statements is false?
Question 3
If you discounted a set of positive real cash flows with a nominal
discount rate and inflation were positive, you would __________ the
present value of those cash flows.
Question 4
All of the following are incremental costs of commuting to college in
your hometown except:
Question 5
Which of the following should not be included as a cash flow in
evaluating a new piece of equipment for manufacturing?
Question 6
The acronym MACRS stands for:
Question 7
If inflation is positive, discounting positive nominal cash flows with a
real discount rate will lead to
Question 8

10. A(n) __________ in working capital represents a(n) __________.
Question 9
When analyzing capital budgeting projects, it is important to consider
__________ and make sure that the project, in addition to having a
positive NPV, makes sense.
Question 10
Analysts should measure all cash flows of a project on a/an __________
basis.
Question 11
Looking at all three different approaches for estimating the expected
market risk premium, the consensus is that
Question 12
Two firms have the same asset beta but different equity betas. The direct
cause is likely:
Question 13
Sensitivity analysis:
Question 14

11. Requiring that all projects with risk comparable to that of the firm as a
whole earn at least the __________ means that firms will only invest in
projects that have positive NPVs.
Question 15
Which of the following is not a competitive advantage for a firm?
Question 16
If the firm applies its WACC to all projects, it will tend to accept some
negative-NPV projects that are
Question 17
A real estate developer considers buying land that currently has
substantial pine trees (pine trees are a desired timber). The development
will not occur for several years and is somewhat flexible, but when it
does, the pine trees will be harvested. The developer determines that
the price uncertainty of the timber will increase over the next few years
(future prices are expected to be very volatile). Does this increase or
decrease the value of the land to the developer?
Question 18
Generally, you would expect the beta of debt for a firm to be
Question 19

12. Which of the following is true for a large diversified conglomerate?
Question 20
Which of the following would explain a positive NPV calculation?
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FIN 405 Week 3 Quiz 2 Ch5
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Question 1
If an investor holds all of her wealth in a single asset, the most
appropriate measure for finding the risk of that asset would be:
Question 2
Jonathan is a risk averse investor. This means that he would:
Question 3

13. Jack and Jill, two finance majors, were arguing over whether to use
standard deviation or variance when discussing a stock's monthly
returns. Jack claimed variance was more appropriate,but Jill thought
standard deviation made more sense. Jack and Jill went up to Ms. Hill
who sided with Jill, offering the following support:
Question 4
Alicia's Aunt Amy asked her to calculate the average annual return she
received on her investment in 3A stock. Aunt Amy had held the stock
for five years and was shocked at how much the percentage return varied
from year to year. Alicia warned her Aunt that the answer would differ
depending on whether she used an arithmetic average or a geometric
average. If Alicia used an arithmetic average she would:
Question 5
Rank the following for assets and the inflation rate from high to low in
the United Kingdom.
Question 6
The equation for a portfolio's expected return is __________.
Question 7
Investors in stocks are likely,
Question 8

14. Using a __________ year holding period, stocks, bonds, and T-bills
have nearly identical standard deviations.
Question 9
The purchasing power of $1 in 1900 is equivalent to the purchasing
power of $__________ in 2000.
Question 10
The variance of any two-asset portfolio depends on these factors:
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