Questions from Corporate Finance

Q: True or false? a. If markets are efficient,

True or false? a. If markets are efficient, shareholders should expect to receive only the risk-free interest rate on their investment. b. If markets are efficient, investment in the stock market is a...

Q: The Treasury bill rate is 4%, and the expected return on

The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model: a. Draw a graph similar to Figure 8.6 showing how the expected return varie...

Q: Epsilon Corp. is evaluating an expansion of its business. The

Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecasts for the project are as follows: The firm’s existing assets have a beta of 1.4. The risk-free interes...

Q: APT Consider a three-factor APT model. The factors and

APT Consider a three-factor APT model. The factors and associated risk premiums are Calculate expected rates of return on the following stocks. The risk-free interest rate is 7%. a. A stock whose retu...

Q: Some true or false questions about the APT: a.

Some true or false questions about the APT: a. The APT factors cannot reflect diversifiable risks. b. The market rate of return cannot be an APT factor. c. There is no theory that specifically identif...

Q: Consider the following simplified APT model: / Calculate the

Consider the following simplified APT model: Calculate the expected return for the following stocks. Assume rf = 5%.

Q: Figure 8.11 purports to show the range of attainable combinations

Figure 8.11 purports to show the range of attainable combinations of expected return and standard deviation. a. Which diagram is incorrectly drawn and why? b. Which is the efficient set of portfolios?...

Q: APT Look again at Problem 19. Consider a portfolio with equal

APT Look again at Problem 19. Consider a portfolio with equal investments in stocks P, P2, and P3. a. What are the factor risk exposures for the portfolio? b. What is the portfolio’s expected return?...

Q: The following table shows the sensitivity of four stocks to the three

The following table shows the sensitivity of four stocks to the three Fama–French factors. Estimate the expected return on each stock assuming that the interest rate is 2%, the expec...

Q: Between 2008 and 2017, the returns on Microfund averaged 10%

Between 2008 and 2017, the returns on Microfund averaged 10% a year. In his 2017 discussion of performance, the fund president noted that this was 2.5% a year better than the return on the U.S. market...