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Finance
- What are the major instruments traded in capital markets?
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- Do not provide Excel Screet shot rather use tool table
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Solved in 3 steps
- Financial theory (and the narrative in the textbook) indicates that NPV is the theoretically correct method to use to evaluate capital investments. Yet, surveys of financial managers consistently indicate that IRR is the most widely used technique by practitioners. Why do you suppose this discrepancy exists?Applying the capital asset pricing model requires that one find appropriate inputs for the risk-free rate, the market rate of return (and market risk premium), and beta. Why is beta, in particular, difficult to pin down? a. People don't have ready access to financial data and won't have any source for this information in the near future. b. The major internet sources of financial data are notoriously unreliable. c. Hackers have been known to manipulate financial data for their own purposes. d. People must rely on historical performance information, and they have to assume that historical relationships continue into the future.Which of the following statements is false? The cost of debt securities is highest due to their relatively low risk The cost of common stock is highest due to its relatively high risk The cost of preferred stock falls somewhere between debt and common stock None of the above Capital budgeting is the decision making process used in the acquisition of long term physical assets True False Which of the following statements are true regarding the payback period of an investment? It does not account for the time value of money No objective criteria exists for what is an acceptable payback period Cash flows occurring after the payback period have no impact on the payback computation All of the above The method that measures a projects return based on present values is the: Internal Rate of Return Discounted Payback Period Modified Internal Rate of Return None of the Above
- How many statements below are correct about the Modigliani-Miller theorem? i. The theorem is not an exact description of reality. ii. The theorem provides a benchmark to understand how the capital structure could affect WACC. iii. The theorem implies that firms have benefited from financing with debt due to a higher required rate of return on debt compared with equity. iv. The value of the firm is not affected by its capital structure under any assumptions.1. Which of the following models for mathematics of the financial markets is dependent on expectations or probabilities of changes in the value of an underlying asset? A. Monte Carlo Simulation B. Black Scholes Model C. Cox-Ross-Rubinstein Model 2. Models for the financial markets are primarily used for all of the following, except, A. Algorithmic Trading B. Technical Analysis (Short term trading) C. Fundamental Analysis (Long term investing D. All of the above 3. Which among the following organizations use financial mathematics as part of their core operation? A. Investment banks B. Government C. Hedge funds D. All of the above 4. S1: Quantitative finance helps to allocate resources to provide the optimum returns. S2: Financial models are accurate. A. Both statements are true B. Both statements are false C.…Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that resources used for rearranging wealth (i.e., bundling and unbundling financial assets) might be better spent on creating wealth (i.e., creating real assets). Evaluate this criticism. Are any benefits realized by creating an array of derivative securities from various primary securities?
- You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand the value of diversification or why stocks with the biggest standard deviations don’t always have the highest expected returns. Your assignment is to address the client’s concerns by showing the client how to answer the following questions: What is the Capital Asset Pricing Model (CAPM)? What are the assumptions that underlie the model? What is the Security Market Line (SML)?The efficient market hypothesis says that Multiple Choice market prices reflect underlying asset values. individual investors should not participate in the financial markets. investors should expect to earn abnormal profits. financial managers can accurately time stock and bond sales. creative accounting can be used to inflate stock prices.Which statement is incorrect related to financial intermediaries (institutions)? * They are firms that specialize in financial intermediation - a process of borrowing funds from SSUs and lending such funds to the DSUs. The main objective of financial intermediaries is to convert savings from SSUs into investments. They are the biggest investors in equity securities in the PSE They offer the highest returns and lowest risks when compared to alternative investments available to SSUs. none of the above
- Capital account transactions are not affected by Select one: a. Investment diversification b. Risk c. Rate of return d. All the answers are correct e. SpeculationSome accountants believe that financial statement analysis is of little benefit as it contradicts the findings of capital markets research. Discuss the findings of capital markets research and its implications for financial statement analysis.Which of the following statements is false? A. Internal controls are the processes by which the firm ensures that it presents accurate financial statements. B. Greenfield investments provide uncertain cash flows with high yields and high growth potential. C. Footnotes allow investors or any users to improve their assessments of the amount, timing, and uncertainty of the estimates reported in financial statements. D. Secondary markets are the markets in which existing, already outstanding securities are traded among investors.
