Finance

Jehlifisch Universität, Herbstsemester 2013

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Manuel Ging

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Manuel Ging

Über diese Lernkartei

Diese Karteikarten bieten einen umfassenden Überblick über Finanzkonzepte auf Universitätsniveau, mit Fokus auf Bewertung von Aktien, Anleihen und Optionen, Risikomanagement und Corporate Governance. Sie decken Themen wie Dividendenrendite, Beta, Volatilität, Duration und die Beziehung zwischen Zinssätzen und Anleihenpreisen ab. Die Karteikarten sind ideal für Studierende und Finanzprofis, die ihr Verständnis von Finanzmarktmechanismen vertiefen möchten, insbesondere in Bezug auf Bewertung, Risikoanalyse und Unternehmensführung.

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Erstellt / Aktualisiert

26.12.2013 / 15.02.2022

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Which statement is correct?

If historical betas are < 1, they will decrease over time.

If historical betas are < 1, they will remain constant over time.

If historical betas are < 1, they will increase over time.

If historical betas are > 1, they will increase over time.

None of the answers a. to d. are correct.

Beta is a measure of:

unique risk.

total risk.

idiosyncratic risk.

systematic risk.

liquidity risk.

Formula for Beta

What is the Beta of a security where the expected return is double that of the U.S. stock market, there is no correlation relative to the U.S. stock market, and the standard deviation of the stock market is .18?

0.00 (No correlation means no covariance, thus no beta)

1.00

1.25

2.00

A normal distribution can be fully characterized by: I) skewness; II) variance; III) mean; IV) kurtosis.

I and II

II and III and IV

I and IV

II and III

Formula: correlation coefficient

For a two-stock portfolio, the maximum reduction in risk occurs when the correlation coefficient between the two stocks equals:

+1.0

-0.5

-1.0

0.0

A capital market consists of the following assets: Asset A, Asset B, other Assets. What happens to the Beta of A as company A grows faster than all other companies (5.4.1)?

The Beta increases, because the returns are very large

The Beta remains constant.

The Beta decreases, because the covariance with the market decreases.

The Beta increases, because the covariance with the market increases.

None of the answers a. to d. are correct (The Beta of company A converges to 1, since its proportion in the market portfolio increases. In the limit, the market would consist only of company A. In that case, the Beta of company A would be equal to 1.)

Formula: Market Variance with two Assets A und B

Market Variance(A,B) = w²(A)*Variance(A) + w²(B)*Variance(B) + 2*Covariance(A,B,)*w(A)*w(B)

Formula: Sharpe Ration

Which statement is correct (5.4.6)?

The relation between expected return and risk, measured by beta, is linear.

The unsystematic risk in the capital market is measured by beta.

Beta of the market portfolio is on average zero.

The Beta of a stock is distributed log-normally.

None of the answers a. to d. are correct.

What is a random walk?
A random walk is …

a random process in a discrete period, where the logarithm of a variable in t+1 equals the logarithm of the variable in t multiplied by the logarithm of an independent and identically distributed increment.

a random process in a discrete period, where the value of a variable in t+1 equals the value of the variable in t plus an independent and identically distributed increment.

a random process in a discrete period, where the continuous returns are positively correlated with each other.

a random process in a continuous period, where the logarithm of a variable in t+1 equals the logarithm of the variable in t plus the logarithm of an independent and identically distributed increment.

a random process in a discrete period, where the logarithm of a variable in t+1 equals the logarithm of the variable in t plus the logarithm of an independent and identically distributed increment.

The statement that stock prices follow a random walk implies that:
I) successive price changes are independent of each other;
II) successive price changes are positively related;
III) successive price changes are negatively related;
IV) the autocorrelation coefficient is either +1.0 or -1.0

I only (they cannot be positively or negatively related, because in a random walk, they are RANDOM, i.e. NOT related. Hence the autocorrelation must also be 0.)

II and III only

IV only

III only

None of the answers a. to d. are correct.

Formula: confidence interval

If capital markets are efficient, then the sale or purchase of any security at the prevailing market price is generally:

a positive-NPV transaction.

a zero-NPV transaction (In efficient markets all assets should be worth their price, hence do not have a positive net present value).

a negative-NPV transaction.

no general trend exists for such transactions.

None of the answers a. to d. are correct.

Which of the following statements is/are true if the strong-form efficient market hypothesis holds?

I) Analysts can easily forecast stock price changes.
II) Financial markets are irrational.
III) Stock returns follow a particular pattern.
IV) Stock prices reflect all available information.

I only

II only

I and III only

IV only

None of the answers a. to d. are correct.

Predictable cycles in stock price movements:

I) tend to persist for a long time;
II) tend to self-destruct as soon as investors recognize them;
III) never appear, since stock returns change randomly

I only

II only

III only

I, II, and III

None of the answers a. to d. are correct.

Informational efficiency in financial markets results in stock prices being:

higher.

lower.

fairer.

easier to predict.

None of the answers a. to d. are correct.

Weak-form efficiency implies that past stock returns:

form patterns that tend to repeat.

are major inputs to investors for forming trading strategies.

do not matter.

are difficult to explain.

None of the answers a. to d. are correct.

If markets are efficient, which of the following investors should achieve superior returns over time?

Investors who choose stocks by throwing darts at a list of stocks in the financial pages of a newspaper

Analysts who spend considerable time evaluating the best stocks to buy

Mutual fund managers who manage other people's money for a living

None of the above

The semistrong form of efficiency focuses on the economic ineffectiveness of the following type of information:

insider information.

publicly available information.

privileged information.

only information provided by the SEC

None of the answers a. to d. are correct.

The various lessons of market efficiency are:

I) markets have no memory;
II) trust market prices;
III) there are no financial illusions;

Remark: ad I: there are not price trends if market are efficient, because stock returns move
randomly, ad II: assets are fairly priced and hence include all information and can be trusted,
ad III: behavioral finance describes only temporary anomalies that are quickly resolved by
the market.

I and II only

I, II, and III

I only

I and III only

None of the answers a. to d. are correct.

Which kind of option is shown below?

K = strike
ST = price of the underlying at maturity

long call.

short call.

long put.

short put.

None of the answers a. to d. are correct.

Formula: put-call-parity for a European option

A call option has the highest time value when it is …

… out of the money

… in the money

… at the money

none of the above

A put option has the highest time value when it is …

… out of the money

… in the money

… at the money

none of the above

The price of a put option…

… is always higher than the price of a call option.

… is always lower than the price of a call option.

… can never become the same as the price of the call option.

none of the above.

A price of a call option is the same as the price of a put option…

if the underlying price equals the discounted strike price.

if the strike price equals the underlying price.

if the strike price is zero.

none of the above.

The delta of a call option is 0.2, then

the price of the option decreases by about 20 cent if the underlying increases by 1 USD.

the price of the option increases by about 20 cent if the underlying increases by 1 USD.

the price of the option increases by about 20 cent if the underlying decreases by 1 USD.

none of the above.

An increase in the volatility of an underlying will…

… increase the value of a corresponding call option.

… increase the value of a corresponding put option.

… increase the value of a corresponding put option and a corresponding call option.

… have no effect on the option prices, because they are calculated by replication.

… none of the above.

_{^{You have a put P L and a call C L on the same stoc k with the same maturity and the same strike. Your adviser shows you a further put P H and a further call CH which have the same specifications but a higher strike.}}

Which price relationship would you as a rational _{^{investor expect for P L and P H / CL and CH ?}}

PL < PH / CL < CH

PL > PH / CL > CH

PL < PH / CL > CH.

PL > PH / CL < CH.

None of the answers a. to d. are correct.

A call option on a dividend paying share can never have a value …

I) lower than the underlying.
II) lower than the underlying minus the discounted strike price.
III) higher than the underlying.

Remark: ad I: If we prove that it cannot be higher or the same, we prove that it must be lower and I is not a correct statement. Hence, if III is correct, I must be false. Hence, just follow the argumentation in “ad III”.
ad II: From the put call parity, we know that: C = S - Xe-rT + P. For the call price to become lower than S - Xe-rT, P must be negative. This is not possible, because there will never be a negative final payoff from an option. ad III: obviously the call option is the right to buy an asset.
ad III: The call price is the highest for the lowest strike price. If the strike price is 0 (called: zero-strike-call), the call price should be (almost) equal to the share price. But since the call option does not pay any dividends like the share does, the call price is a little below the price of the share. Hence it cannot be higher than the share price.

I only

I and II

I, II and III

II and III

III only

Which statement is correct?

The relation between expected return and risk, measured by beta, is linear.

The unsystematic risk in the capital market is measured by beta.

Beta of the market portfolio is on average zero.

Historical but not adjusted betas are used in the CAPM.

None of the answers a. to d. are correct.

The stock of Y-Corporation has a beta of 1.3. Which statement is correct?

If market return increases by 200 basis points, …

the return of stock Y remains constant.

the return of stock Y increases also by 200 basis points.

the return of stock Y decreases by 260 basis points.

the return of stock Y decreases by 200 basis points.

None of the answers a. to d. are correct.

Empirical studies show that the correlations between individual stocks and the market portfolio are not stable but change over time. Assume that the correlation between stock X and the market portfolio doubles in a certain time-frame.

What is the impact (ceteris paribus) on Beta?

The Beta doesn't change.

The Beta duplicates.

The Beta divides by two.

A statement about the impact on Beta is not possible as further information is necessary.

None of the answers a. to d. are correct.

Formula: certainty-equivalent cash flows

(CF x (1+r_f)^t) / (1+CAPM)^t

In the year 1993, Fama and French developed a multifactor model which had three factors.
Which were these three factors?

Term spread / credit spread / market risk premium.

Market risk premium / big minus small / term spread.

Market risk premium / small minus big / high minus low.

None of the answers a. to d. are correct.

Stocks that …are characterized as value stocks.

have a high book-to-market ratio

have a low book-to-market ratio

belong to the big companies.

belong to the small companies.

None of the answers a. to d. are correct.

SMB is the return of a portfolio which …

is long in stocks of companies with a high book-to-market ratio and short in stocks of companies with a low book-to-market ratio.

is short in stocks of companies with a high book-to-market ratio and long in stocks of companies with a low book-to-market ratio.

includes only the 50% of the biggest companies.

includes only the 50% of the smallest companies.

None of the answers a. to d. are correct (SMB is the return of a portfolio which is long in stocks of small companies and short in stocks of big companies).

Which of the following criteria is not an argument for financing with debt?

Leverage.

Tax advantage.

Pecking order in finance.

Signaling.

None of the answers a. to d. is an argument for debt financing.

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