Finance Multiple Choice Exam Questions
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1. Which of the following is least likely to be con- on the shares of
sistent with the optimal, primary objective of Company X?
the finance manager?
a) Maximise the current stock price.
b) Maximise the current market value of equity.
c) Increase the wealth of owners.
d) Increase economic value of corporate
assets.
e) Maximise profits.
2. You manage an investment portfolio that is
made up of 25%, 3 month Treasury Bills. 26%
S&P /NZX50 index and 50% shares of Company
X. Examination of the data of Company X
shows that it has a beta of 1.6. The 3 month
Treasury Bills yield a return of 3.5% and the
expected return on the S&P/NZX50 index is
7.5%. Assume the market is efficient and the
CAPM theory ap- plies.
What is the market risk premium?
a) 3.5%
b) 4.0%
c) 6.7%
d) 7.5%
e) 7.7%
3. You manage an investment portfolio that is
made up of 25%, 3 month Treasury Bills. 26%
S&P /NZX50 index and 50% shares of Company
X. Examination of the data of Company X
shows that it has a beta of 1.6. The 3 month
Treasury Bills yield a return of 3.5% and the
expected return on the S&P/NZX50 index is
7.5%. Assume the market is efficient and the
CAPM theory ap- plies.
Using the CAPM, what is the expected return
, Finance Multiple Choice Exam Questions
Study online at https://quizlet.com/_7b0cag
e) Maximise profits.
b) 4.0%
= (Rm - Rf)
= 7.5% - 3.5%
= 4.0%
a) 9.9%
Rp = Rf + Beta x (Rm - Rf)
Rp = 3.5% + 1.6 x (4%)
Rp = 9.9%
, Finance Multiple Choice Exam Questions
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a) 9.9%
b) 8.5%
c) 11.5%
d) 3.5%
e) 7.5%
4. You manage an investment portfolio that is c) 7.7%
made up of 25%, 3 month Treasury Bills.
26%
S&P /NZX50 index and 50% shares of Company rp = wj x rj
X. Examination of the data of Company X rp = 25% (3.5)
shows that it has a beta of 1.6. The 3 month x 25%(7.5%) x
Treasury Bills yield a return of 3.5% and the 50%(9.9%)
expected return on the S&P/NZX50 index is rp = 7.7%
7.5%. Assume the market is efficient and the
CAPM theory ap- plies.
What is the expected return on the entire
invest- ment portfolio?
a) 3.5%
b) 11.9%
c) 7.7%
d) 8.2%
e) 6.7%
5. According to the expectations theory, an a) An expectation of
upward sloping yield curve results from: in- creasing inflation
rates in the future.
a) An expectation of increasing inflation rates
in the future.
b) An expectation of decreasing inflation
rates in the future.
c) An expectation that the inflation rate will
be stable over time.
d) Longer-term securities being riskier
than shorter-term securities.
e) Shorter-term securities being riskier than
longer-term securities.
6.
, Finance Multiple Choice Exam Questions
Study online at https://quizlet.com/_7b0cag
Which of the following statements is correct? d) Statements A and
C are correct.
a) If an investor buys 500 shares of Westpac on
the stock exchange from other investors, this
is a secondary market transaction.
b) Private securities are generally more
liquid than publicly traded securities.
c) Money markets are where short-term,
liquid securities are traded, whereas capital
markets represent the markets for long-term
debt and ordinary shares.
d) Statements A and C are correct.
e) All of the above statements are correct.
7. After-tax earnings of Company A are $50,000. Pa = (50,000 /
Company A has 200,000 shares outstanding in 200,000)
the market. The average price earnings (P/E) x 16
ra- tio of companies that are in the same Pa = $4
industry and have similar size as Company A is
16. What is the share price of Company A
using the P/E multiple approach?
a) $4.00
b) $5.00
c) $6.00
d) $3.00
e) $7.00
8. Regarding interest rate risk, of greatest concern c) Rising interest
rates
to bond holders is: because bond value
de- creases.
a) Steady interest rates because there are
no trading opportunities.
b) Falling interest rates because bond
holders get less return.
c) Rising interest rates because bond value
de- creases.
d) Falling interest rates because bond value in-
Study online at https://quizlet.com/_7b0cag
1. Which of the following is least likely to be con- on the shares of
sistent with the optimal, primary objective of Company X?
the finance manager?
a) Maximise the current stock price.
b) Maximise the current market value of equity.
c) Increase the wealth of owners.
d) Increase economic value of corporate
assets.
e) Maximise profits.
2. You manage an investment portfolio that is
made up of 25%, 3 month Treasury Bills. 26%
S&P /NZX50 index and 50% shares of Company
X. Examination of the data of Company X
shows that it has a beta of 1.6. The 3 month
Treasury Bills yield a return of 3.5% and the
expected return on the S&P/NZX50 index is
7.5%. Assume the market is efficient and the
CAPM theory ap- plies.
What is the market risk premium?
a) 3.5%
b) 4.0%
c) 6.7%
d) 7.5%
e) 7.7%
3. You manage an investment portfolio that is
made up of 25%, 3 month Treasury Bills. 26%
S&P /NZX50 index and 50% shares of Company
X. Examination of the data of Company X
shows that it has a beta of 1.6. The 3 month
Treasury Bills yield a return of 3.5% and the
expected return on the S&P/NZX50 index is
7.5%. Assume the market is efficient and the
CAPM theory ap- plies.
Using the CAPM, what is the expected return
, Finance Multiple Choice Exam Questions
Study online at https://quizlet.com/_7b0cag
e) Maximise profits.
b) 4.0%
= (Rm - Rf)
= 7.5% - 3.5%
= 4.0%
a) 9.9%
Rp = Rf + Beta x (Rm - Rf)
Rp = 3.5% + 1.6 x (4%)
Rp = 9.9%
, Finance Multiple Choice Exam Questions
Study online at https://quizlet.com/_7b0cag
a) 9.9%
b) 8.5%
c) 11.5%
d) 3.5%
e) 7.5%
4. You manage an investment portfolio that is c) 7.7%
made up of 25%, 3 month Treasury Bills.
26%
S&P /NZX50 index and 50% shares of Company rp = wj x rj
X. Examination of the data of Company X rp = 25% (3.5)
shows that it has a beta of 1.6. The 3 month x 25%(7.5%) x
Treasury Bills yield a return of 3.5% and the 50%(9.9%)
expected return on the S&P/NZX50 index is rp = 7.7%
7.5%. Assume the market is efficient and the
CAPM theory ap- plies.
What is the expected return on the entire
invest- ment portfolio?
a) 3.5%
b) 11.9%
c) 7.7%
d) 8.2%
e) 6.7%
5. According to the expectations theory, an a) An expectation of
upward sloping yield curve results from: in- creasing inflation
rates in the future.
a) An expectation of increasing inflation rates
in the future.
b) An expectation of decreasing inflation
rates in the future.
c) An expectation that the inflation rate will
be stable over time.
d) Longer-term securities being riskier
than shorter-term securities.
e) Shorter-term securities being riskier than
longer-term securities.
6.
, Finance Multiple Choice Exam Questions
Study online at https://quizlet.com/_7b0cag
Which of the following statements is correct? d) Statements A and
C are correct.
a) If an investor buys 500 shares of Westpac on
the stock exchange from other investors, this
is a secondary market transaction.
b) Private securities are generally more
liquid than publicly traded securities.
c) Money markets are where short-term,
liquid securities are traded, whereas capital
markets represent the markets for long-term
debt and ordinary shares.
d) Statements A and C are correct.
e) All of the above statements are correct.
7. After-tax earnings of Company A are $50,000. Pa = (50,000 /
Company A has 200,000 shares outstanding in 200,000)
the market. The average price earnings (P/E) x 16
ra- tio of companies that are in the same Pa = $4
industry and have similar size as Company A is
16. What is the share price of Company A
using the P/E multiple approach?
a) $4.00
b) $5.00
c) $6.00
d) $3.00
e) $7.00
8. Regarding interest rate risk, of greatest concern c) Rising interest
rates
to bond holders is: because bond value
de- creases.
a) Steady interest rates because there are
no trading opportunities.
b) Falling interest rates because bond
holders get less return.
c) Rising interest rates because bond value
de- creases.
d) Falling interest rates because bond value in-
