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Corporate Finance Chapters 12 and 13 Flashcards | StudBud

Explore/Corporate Finance Chapters 12 and 13

Corporate Finance Chapters 12 and 13

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Estimating cost of capital

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Questions 9

Answers

1
When all investors analyze securities in the same way, we say they have
homogeneous expectations
equal risk aversion
asymmetric information
heterogeneous expectations
2
The market portfolio has a beta of
-1
1
0.5
0
3
What risk does standard deviation measure?
Total
It does not, it measures return, not risk
Firm-specific
Market
4
According to the capital asset pricing model, fairly priced securities have
zero alphas
positive alphas
positive betas
negative betas
5
The possibility of arbitrage arises when
mispricing creates opportunities for riskless profits
investors do not diversify
there's no consensus about the future market direction
identically risky securities have the same expected returns
6
The difference between the arbitrage pricing theory (APT) and CAPM is that the CAPM
recognizes multiple unsystematic risk factors
recognizes only one systematic risk factor
recognizes multiple systematic risk factors
places less emphasis on market risk
7
According to the capital asset pricing model, a security with a
positive alpha is considered overpriced
negative alpha is considered a good buy
zero alpha is considered a good buy
positive alpha is considered underpriced
8
If all investors become more risk averse, the SML will ____ and stock prices will ____.
have the same intercept with a flatter slope; rise
shift downward; fall
have the same intercept with a steeper slope; fall
shift upward; rise
9
If enough investors decide to buy stocks, they are likely to drive up prices, thereby causing
expected returns to fall; risk premiums to fall
expected returns to rise; risk premiums to rise
expected returns to fall; risk premiums to rise
expected returns to rise; risk premiums to fall