How does adding stocks to a portfolio affect its volatility?

What is the efficient frontier?

What is the Sharpe ratio, and what does it measure?

How does beta affect an investment's cost of capital?

How are the capital market line and security market line similar? How are they different?

Explain the difference between financial risk and business risk? What factors in?uence a ?rm's business and financial risk?

There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work?

Stockholders can transfer wealth from bondholders through a variety of actions. List and explain three (3) key actions that stockholders can take to transfer wealth from bondholders.

Explain what capital structure theory attempts to complete and demonstrate useful lessons that can be learned from capital structure theory.

Using the free cash flow valuation model, identify avenues by which capital structure can affect the weighted average cost of capital and firm value.

Explain the difference between financial risk and business risk? What factors influence a firm's business and financial risk?

There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work?

Stockholders can transfer wealth from bondholders through a variety of actions. Explain three (3) key actions that stockholders can undertake to transfer wealth from bondholders.

Identify five (5) features that distinguishes Finance lease from Operating Lease

There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work?

There are some corporate strategists who have suggested that firms focus on maximizing market share rather than market prices. When might this strategy work, and when might it fail?

It is often argued that managers, when asked to maximize stock price, have to choose between being socially responsible and carrying out their fiduciary duty. Do you agree? Can you provide an example where social responsibility and firm value maximization go hand in hand?

There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work?

There are some corporate strategists who have suggested that firms focus on maximizing market share rather than market prices. When might this strategy work, and when might it fail?

It is often argued that managers, when asked to maximize stock price, have to choose between being socially responsible and carrying out their fiduciary duty. Do you agree? Can you provide an example where social responsibility and firm value maximization go hand in hand?

Why might the two (2) disciplinary mechanisms of shareholders against managers not work?

What are convertible bonds? How do they protect bondholders against expropriation by stockholders.

As a consultant of ABC Company, you are requested to answer the following, providing concise explanation.

How do you calculate a portfolio return?

Conceptually, how are covariance and correlation different?

How does adding stocks to a portfolio affect its volatility?

What is the efficient frontier?

What is the Sharpe ratio, and what does it measure?

What is the minimum variance Portfolio?

How does beta affect an investment's cost of capital?

Is the market portfolio efficient? Justify your answer.

How are the capital market line and security market line similar? How are they different?

Differentiate between the Capital Market Line and the Security Market Line

Differentiate between systematic and unsystematic Risk

Stockholders can transfer wealth from bondholders through a variety of actions. How would the following actions by stockholders transfer wealth from bondholders?

An increase in dividends

A leveraged buyout

Acquiring a risky business

How would bondholders protect themselves against these actions?

Stockholders transfer wealth from bondholders through the following three (3) means. Explain how. In what ways can bondholders protect themselves against these actions?

An increase in dividends

A leveraged buyout

Acquiring a risky business.

Section ii.

10) Credits a. Decrease both assets and liabilities b. Decrease assets and increase liabilities C. Increase both assets and liabilities d. Increase assets ad decrease liabilities 11) The normal balance of any account is the a. Left side b. Right side C. Side which increase that account d. Side which decreases that account 12) Which of the following represents the expanded basic accounting equation? a. Assets = Liabilities + Owner's Capital + Owner's Drawings - Revenues -Expenses b. Assets + Owner's Drawings + Expenses = Liabilities + Owners Capital + Revenues c. Assets - Liabilities - Owner's Drawings = Owner's Capital + Revenues - expenses Assets = revenues + expenses - Liabilities 13) Which of the following correctly identifies normal balance of account a. Assets Debits Liabilities Credit Owner's equity Credit Revenues Debit Expenses Credit b. Assets Debit Liabilities Credit Owner's Equity Credit Revenues Credit Expenses Credit C. Assets credit Liabilities Debit Owner's Equity Debit Revenues Credit Expenses Debit d. Assets Debit Liabilities Credit Owner's equity Credit Revenues Credit Expenses Debit 14) Which account below is not a subdivision of owner's equity? a. Drawings b. Revenues C. Expenses d. Liabilities 2a. On January 1 of the current year, the company purchased a new hauling van at a cash cost of $23,800. Depreciation estimated at $2,100 for the year has not been recorded for the current year. b. During the current year, office supplies amounting to $820 were purchased for cash and debited in full to Supplies. At the end of last year, the count of supplies remaining on hand was $310. The inventory of supplies counted on hand at the end of the current year was $380. c. On December 31 of the current year, Lanie's Garage completed repairs on one of S. Miller Towing's trucks at a cost of $1,110; the amount is not yet recorded by S. Miller Towing and by agreement will be paid during January of next year. d. On December 31 of the current year, property taxes on land owned during the current year were estimated at $1,320. The taxes have not been recorded and will be paid in the next year when billed. e. On December 31 of the current year, the company completed towing service for an out-of-state company for $7,800 payable by the customer within 30 days. No cash has been collected, and no journal entry has been made for this transaction. f. On July 1 of the current year, a three-year insurance premium on equipment in the amount of $600 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1 of the current year. g. On October 1 of the current year, the company borrowed $9,600 from the local bank on a one-year, 13 percent note payable. The principal plus interest is payable at the end of 12 months. h. The income before any of the adjustments or income taxes was $34,000. The company's income tax rate is 30 percent, (Hint: Compute adjusted pre-tax income based on (a) through (9) to determine income tax expense.) 2. Using the following headings, indicate the effect of each adjusting entry and the amount of the effect. (Reminder: Assets = Liabilities + Stockholders' Equity; Revenues - Expenses . Net Income: and Net Income accounts are closed to Retained Earnings, a part of Stockholders' Equity) (Enter negative amounts with a minus sign. Round your final answers to nearest whole dollar value.) Balance Sheet Income Statement Transaction Assets Liabilities Stockholders" Equity Revenues Exportes Net Income d28a) To investigate the relationship between federal budget deficits and interest rates, the following equation was estimated by least squares, using quarterly data for the period 1970-1983: Y = 0.103 - 0.079X , SER = 0.523, R' =.00 (0.092) (0.079) 16 (): standard deviations. where: Y = interest rate on Aaa bonds (average value about 10%) X = the federal deficit as a percent of gross national product (average value about 3%) a. Give a 95% confidence interval for the effect of X on Y. b. Is the estimated effect of X of Y statistically significant at the 5% level? C. Is this estimated effect substantial? d. It is widely believed that an increase in the federal deficit increases interest rates. Do these results disprove that belief? What does SER measure? f. What does R measure? SIM 420,13.1 b) An investor holding a portfolio consisting of two stocks invests 25% of assets in Stock A and 75% into Stock B. The return RA from Stock A has a mean of 4% and a standard deviation of GA = 8%. Stock B has an expected return E(Ry) = 8% with a standard deviation On = 12%. The portfolio return is P = 0.25 RA+0.75Ra. i) Compute the expected return on the portfolio. iD) Compute the standard deviation of the returns on the portfolio assuming that the two stocks' returns are perfectly positively correlated. iii) Compute the standard deviation of the returns on the portfolio assuming that the two stocks' returns have a correlation of 0.5. iv) Compute the standard deviation of the returns on the portfolio assuming that the two stocks' returns are uncorrelated. P.14 HGL