Corporate Finance Question Since roughly the mid-1980’s, the cumulative performance of a Small Minus Big portfolio hasbeen roughly zero. Does this mean the Fama & French three-factor model is theoretically incorrect?
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Since roughly the mid-1980’s, the cumulative performance of a Small Minus Big portfolio has
been roughly zero. Does this mean the Fama & French three-factor model is theoretically incorrect?
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- Corporate Finance Since roughly the mid-1980’s, the cumulative performance of a Small Minus Big portfolio has been roughly zero. Does this mean the Fama & French three-factor model is theoretically incorrect?Which statement is NOT correct? The distribution of returns does not affect the expected average rate of return. To find the dividend yield, we can subtract the capital gain yield from the total stock return. Average geometric return is a better indicator than the average arithmetic return for the growth. Wider the distribution of return, riskier is the investment. The current risk premium for U.S. Treasury bills is 0%.Q1)VaR can be defined as the minimal loss of a financial position during a given time period for a given probability. true or fslse Q2 Stocks tend to move together if they are affected by ________. common economic events events unrelated to the economy idiosyncratic shocks unsystematic risk Q3)Beta can be viewed as a measure of systematic risk TRUE OR FASE
- Consider the following information about the various states of economy and the returns of various investment alternatives for each scenario. Answer the questions that follow. State of the Economy Recession Below Average Average Above Average Boom Mean Standard Deviation Coefficient of Variation Covariance with MP Correlation with Market Index Beta CAPM Req. Return Valuation (Overvalued/Undervalued/Fairly Valued) Nature of stock (Aggressive/Defensive) Probability 0.2 0.1 0.3 0.3 0.1 Question 2 % Return on T-Bills, Stocks and Market Index Pay- Rubber- Market made Index 10 -13 T- Bills 7 7 7 7 7 Phillips -22 -2 20 35 50 up 28 14.7 0 -10 -20 Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nine line items. Using the data generated in the previous question (Question 1); a) Plot the Security Market Line (SML) -10 7 45 30 1 15 29 43 b) Superimpose the CAPM's required return on the SML c) Indicate which investments will plot on, above and…**True/false questions ** a) APR interest includes compounding effect. b) Most M&As in U.S. history were friendly, and the payment method was often cash. c) Stock A has a higher expected return and lower variance than stock B. Including B in an efficient portfolio is questioned. d) In IPO pricing, dual - class stock tends to be undervalued compared to single - class stock. e) The value of a company is not independent of its structure due to the tax shieldWhich of the following is true with Money Market? Select one: a. Attracts long term investor and borrower b. None of the options c. Deals with old stocks issued by companies d. Needs fixed place for trading e. Provides long term instruments which are already issued by companies The project is accepted Select one: a. If the profitability index is negative b. None of the option c. if the profitability index is less than one d. If the profitability index is greater than hundred e. If the profitability index is zero
- Consider the following information about the various states of economy and the returns of various investment alternatives for each scenario. State of the Economy Recession Below Average Average Above Average Boom Mean Standard Deviation Coefficient of Variation Covariance with MP Correlation with Market Index Beta CAPM Req. Return Valuation (Overvalued/Undervalued/Fairly Valued) Nature of stock (Aggressive/Defensive) Probability 0.2 0.1 0.3 0.3 0.1 % Return on T-Bills, Stocks and Market Index T- Bills 7 7 7 7 7 Phillips -22 Fill the parts in the above table that are shaded in yellow. -2 20 35 50 Pay- Rubber- up made 28 10 -10 7 45 30 14.7 0 -10 -20 Market Index -13 15 29 43Consider the following information: State of Economy Probability of State of Economy Boom Bust .73 .27 a. Expected return b. Variance of portfolio Answer is not complete. 14.59 Rate of Return if State Occurs. Stock A Stock B Stock C a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 28 percent each in A and B and 44 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. % .11 .20 .05 .26 .31 -.11Which of the following is false? 1. When given the annual withdrawals desired during the retirement period, PVA tells us the amount we should have accumulated by the time we retire. II. For fixed-rate fully amortized mortage loans, less of the fixed payment goes towards interest as we approach the end of the loan term. III. The right-hand side variables in the PV formula represent the three key factors determining stock prices. O A. O B. O C. OD. None of the above All of the above II only I only
- Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)? Investors behave in accordance with Markowitz mean-variance portfolio theory. Investors are rational and risk averse. Investors all invest for the same period of time. Investors have heterogeneous expectations about expected returns and return variances for all assets. There is a risk free rate at which all investors can borrow or lend any amount. Capital markets are perfectly competitive, frictionless and efficient. Question Six: Which of the following expressions best describes the slope of the security market line? The slope of the security market line is equal to the Sharpe ratio. The slope of the security market line is equal to the Treynor ratio. The slope of the security market line is equal to alpha. The slope of the security market line is equal to the market risk premium. The slope of the security market line is equal to the standard deviation of the risky…Finance Political stability is a major factor of which one of the following? business risk inflation risk country risk exchange rate risk 2. Regarding short selling: which one of the following statements is incorrect? Dividends on any stock sold short must be covered by the short seller. There is no time limit on a short sale. Short sales are permitted only on falling prices or a downtick. Short sellers must put up margin as if they had gone long.Consider the following scenario analysis:- State of Economy Probability Stocks Bonds Recession 0.2 -8% 18% Normal Economy 0.4 16% 9% Boom 0.4 22% 3% Which investment is least risky on the basis of co-efficient of variation (CV)? Note: mentioned the CV (figure in answer box), which option you think its better for investment