If the firm's value of debt is £200 million and the firm has 250 million shares outstanding and its current market price per share is 200 pence, then:

A. The company appears to be significantly undervalued

B. The company appears to be more or less fairly valued

C. The company appears to be significantly overvalued

D. The company is trading for £50 million

As the number of assets in a portfolio increases, the variance of the portfolio will lend towards

A. The average component set standard deviation

B. The average component asset variance

C. The average covariance between pairwise combinations of the assets

D. The average correlation between pairwise combinations of the assets.

Which of the following problems will be encountered when we practically implement mean-variance analysis:

(I)To form an optimal portfolio among all risky assets, we would require millions of parameter estimates.

(II) When we use past data to estimate parameters, we have estimation error. Past data does not tell us exactly how risky assets behave. instead the past is only one possible outcome out of many.

(III)The tangency portfolio is very sensitive to measurement error Sight measurement error can lead to portfolios that are extremely long in some securities and extremely short in others. Even if such positions were practical. They are not likely the true optimal portfolio weights.

A. (I) and (II)

B. (II) and (III)

C. (I) and (III)

D. (I), (II) and (III)

Suppose that low Price-to-Book firms generate higher returns than high Price-to-Book firms but the former firms have higher CAPM betas than the latter. If this difference in betas can explain the additional returns, we would conclude that:

A. The market is inefficient

B. The value premium could be explained by systematic risk

C. The value premium is caused by unsystematic risk

D. The CAPM is an inadequate model for explaining the value premium

If the market is informationally efficient, which of the following is true?

A. Stock selection will be profitable

B. Investors will be unable to systematically beat the market

C. No investors will beat the market

D. Only highly skilled investors will be able to beat the market

Answer rating: 100% (QA)

Lets break down each of the questions 1 If the firms value of debt is 200 million and the firm has 2... View the full answer