Mock Questions - Mock Exam 2022 #1 - Second Session
(Corporate Finance, Equity, Fixed Income, Derivatives,
Alternative Investments & Portfolio Management)
Q.1 Energy Beverages plans to introduce a new mineral drink named "Spark." T he company has
estimated that the new project's NPV is $5 million, but this ignores the decrease in sales of existing
energy drink named "Power" caused by a new project. It is estimated by the company that the
existing drink will lose $700,000 in after-tax cash flows during each of the next 10 years because of
the cannibalization. Energy's WACC is 8.5%. T he NPV of the new energy drink "Spark" after
considering externalities is most likely
A. $407,056.
B. $4,592,94.
C. $5,000,000.
Q.2 Based on the data provided in the following table, the operating cycle of Armenia Ltd. is closest
to:
A. 95 days.
B. 99 days.
C. 108 days.
Q.3 Jason Smith is a consultant engaged by a new company to formulate its policies and systems.
Jason is listing down the roles and responsibilities of the Audit Committee as per best practices of
corporate governance.
T he list is least likely to include:
A. any conflicts between the external auditor and the firm are resolved in a manner that
favors the shareholders.
B. the audit committee has the authority to approve or reject any proposed non-audit
engagements with the external audit firm.
C. the internal auditor must not contact the audit committee directly and only communicate
its findings through the management.
Q.4 Mr. Roy is planning to invest $150,000 in a home décor business. T he cash inflows are as
follows:
1st year: $35,000
2nd year: $55,000
3rd year: $75,000
T he cost of capital is 7%. T he IRR of the business is:
A. 0%. Hence, Roy should not invest in the business.
B. 4.37%. Hence, Roy should not invest in the business.
C. 7%. Hence, Roy should invest in the business.
Q.5 For distributed ledger technology to work, what are the most appropriate required elements?
A. Peer-to-peer network.
B. Clearly defined asset classes for exchange.
C. Blockchain to provide secure and valid achievement.
Q.6 Which of the following is least likely an ESG implementation method?
A. Worst-in-class.
B. Impact investing.
C. Positive screening.
Q.7 Organic Foods Inc. is considering a new project in the health-based packaged foods segment. An
analyst has gathered information about a listed company named Health Farms Inc. which is
exclusively into the health-based packed foods business. T he following information is available:
T he weighted average cost of capital for the project is closest to:
A. 10.40%
B. 12.90%
C. 13.20%
Q.8 Below are the details of the Operating cycle and Cash Conversion cycle of Citrus Corp for the
last three years.
T he trend in the operating and cash conversion cycles most likely indicates that the:
A. Payables of Citrus Corp are stretched in the last 3 years.
B. T he liquidity of Citrus Corp has improved over the last 3 years.
C. Receivable Collection of Citrus Corp has slowed down over the past 3 years.
Q.9 Veko Plastic is a plastics manufacturing company that has the maximum capacity to manufacture
200,000 plastic bags per year. Currently, Veko operates at 60% of its maximum capacity in order to
generate revenues of $600,000.
Without considering fixed financing costs, the operating breakeven quantity of bags Veko should
produce is closest to:
A. 30,000 bags.
B. 54,000 bags.
C. 90,000 bags.
Q.10 A project has the following characteristics:
T he Net Present Value (NPV) of the project is closest to:
A. $6,515.
B. $7,239.
C. $9,365.
Q.11 Raman Enterprises and Madan Enterprises are operating in the same industry segment of locks
manufacturing. T here is an expectation of improvement in the market environment and a 20%
increase in sales for all the industry players going forward. Both companies have an identical scale of
operations with total assets deployed of $400,000 and unit sales of 100,000. T hey sell their products
at $4 per unit incurring a variable cost of $2 per unit and fixed costs of $50,000. Raman Enterprises
finances 40% of its assets from equity and 60% from debt. Madan Enterprises finances its operations
100% from equity. T he interest rate on debt for both companies is 8%. T he Degree of Total
Leverage for the two companies is closest to:
A. Raman Enterprises: 1.11; Madan Enterprises 1.33.
B. Raman Enterprises: 1.33; Madan Enterprises 1.53.
C. Raman Enterprises: 1.53; Madan Enterprises 1.33.
Q.12 Rachel Green is discussing corporate governance best practices with her team. Following are
two of her statements regarding corporate governance.
I. To avoid wasting shareholders' resources, the board of directors should get management approval
before hiring an outside consultant.
II. A higher number of representatives on the Board of Directors is better for shareholders as the
shareholder's interest will be fairly represented.
Which of the statement(s) mentioned above is/are most likely accurate?
A. Both statements are correct.
B. Only one statement is correct.
C. Both statements are incorrect.
Q.13 Carton Co. expects to produce 50,000 units of watches for the following year. T he selling price
per watch is $200, the variable cost per watch is $100, fixed costs are $3,500,000, and interests are
$750,000.
T he degree of operating and the degree of total leverage for Carton [Link] closest to:
A. DOL: 3.33; DT L: 1.12
B. DOL: 3.33; DT L: 6.67
C. DOL: 6.67; DT L: 3.33
Q.14 Lili Telecom Limited recently acquired MMQ Telematics Limited in a highly competitive bid.
T he details of Lili’s share price pre-acquisition are given in the following exhibit. Exhibit 1: Lili
Telecom Limited
Lili Telecom paid $5 million to the shareholders of MMQ Telematics for the acquisition. Postacquisition,
the share price of Lili Telecom rose by 10%. T herefore, the fair value of MMQ
Telematics is closest to:
A. $8 million.
B. $9 million.
C. $10 million.
Q.15 T he initial outlay on a new project is $100,000. It generates annual cash flows of $40,000 for
the next five years. T he firm's debt to equity ratio is 1x, and new projects are also financed in the
same proportion. T he company's weighted average cost of capital is 11.34%, and flotation costs for
equity are 5%. T he NPV of the project using the correct treatment of flotation costs is closest to:
A. 44,080
B. 46,580
C. 41,251
Q.16 Following is the data of Blue-Chip Co. Target Capital Structure: Debt: 30%; Preference Shares:
15%; Equity: 55% T he price of their bonds on a fair value of $1,000 is $955. T he company is paying a
6% coupon for ten years. Equity dividends are expected to be $2.50 in the next year and will grow at
5%. T he current market price of the stock is $25. T he preferred stock with a par value of $100
pays a dividend of 7% and is currently selling at $95. If the marginal tax rate is 40%, the after-tax cost
of debt and after-tax cost of preferred stock is closest to:
A. Debt: 3.98%; Preferred Shares: 7.37%.
B. Debt: 3.98%; Preferred Shares: 4.42%.
C. Debt: 6.63%; Preferred Shares: 7.37%.
Q.17 Which of the following is the appropriate term for the discount rate that makes the present
value of expected incremental after-tax cash inflows equivalent to the initial cash outlay?
A. Net Present Value.
B. Opportunity Cost.
C. Internal rate of Return.
Q.18 A Company is planning to raise USD 15 million for its expansion project. T he Company’s CFO
discusses with the CEO three options that are available to the Company to raise capital. T hese
include retained earnings, debt from the bank, and issuance of equity in the market. According to the
Pecking order theory, which of the following should be the order of preference for the Company?
A. Finance the expansion project first through retained earnings, then through debt financing,
and then through the issuance of equity.
B. Finance the expansion project first through the issuance of equity, then through debt
financing, and then through retained earnings.
C. Finance the expansion project first through debt financing, then through retained earnings,
and then through the issuance of equity.
Q.19 T he segregated cash flows from securitized assets are most appropriately called:
A. dark pools.
B. tranches.
C. special purpose entities.
Q.20 Open Ltd has average days of receivables of 50 days, average days inventory of 40 days, and
average days payable of 30 days. Port Ltd, operating in the same industry, has a receivables turnover
of 6 times, inventory turnover of 12 times, and payables turnover of 9 times. Given the information
above, what is the most accurate statement?
A. Port Ltd has a shorter cash conversion cycle than Open Ltd.
B. Open Ltd has a shorter cash conversion cycle than Port Ltd.
C. Cash conversion cycle for Open Ltd and Port Ltd is approximately equal.
Q.21 An investor is interested in investing in a pharma Company listed on S&P 500. T he correlation
between the company and S&P 500 is 0.78, while the standard deviation of returns of the company is
18% and the standard deviation of returns of S&P is 25%. T he adjusted beta value of the Companyis
closest to:
A. 0.5616
B. 0.7077
C. 1.1757
Q.22 T he most appropriate term for excluding shares held by owners and shares unavailable for
foreign buyers while constructing a market capitalization-weighted index is:
A. free float.
B. index float.
C. market float.
Q.23 An investor buys 100 shares of a stock on a margin of $146 a share using an initial leverage ratio
of 1/2. T he price at which he will receive a margin call if the position's maintenance margin
requirement is 40% is closest to:
A. $58.40.
B. $116.80.
C. $121.67.
Q.24 Which of the following is most likely a disadvantage of market capitalization-weighting?
A. Constituent securities are held in proportion to their value in the target market.
B. Its simplicity and failure to consider other factors such as the volume of shares sold.
C. Constituent securities whose prices have risen the most (or fallen the most) have a
greater (or lower) weight in the index.
Q.25 Texas Corp. is a calculator manufacturing firm expected to pay a dividend of $2 next year that
will grow 5% for two more years. If the stock is expected to sell for $30 at the end of the third year
and the required rate of return is 11%, then the stock's present value is closest to:
A. $23.55
B. $25.44
C. $27.05
Q.26 Sadin Nigaro is an equity analyst who is evaluating Piron Corp. T he firm is a public limited
company that manufactures lifeboats.
v
From the data given above, the difference between the per-share market value of equity and the pershare
book value of equity is closest to:
A. $5
B. $5.33
C. $5.75
Q.27 If a market is semi-strong form efficient, the risk-adjusted returns of a passively managed
portfolio relative to an actively managed portfolio are most likely
A. lower
B. higher
C. the same
Q.28 In the case of a share denominated in foreign currency, the appreciation of the foreign
currency most likely :
A. increases the returns.
B. not affect the returns.
C. decreases the returns.
Q.29 Muhammad Umar is a fund manager who wants to purchase 5,000 stocks of Wellington Inc. at
the current price of $92. If the initial margin required to open up a leveraged position is 35%, the
leverage ratio is closest to:
A. 2.86.
B. 3.10.
C. 4.45.
Q.30 Which of the following is the most appropriate statement regarding the underutilized capacity
of an industry?
A. Underutilized capacity results in excess demand.
B. Underutilized capacity results in higher pricing power.
C. Underutilized capacity results in a lower return on capital.
Q.31 Which of these is most likely the major focus of a portfolio manager under the efficient market
hypothesis?
A. Diversify the portfolio.
B. Follow a strict buy and hold strategy.
C. Reduce the systematic risk to the minimum.
Q.32 Efficient market portfolio managers are least likely to<:
A. limit transaction costs to the minimum.
B. devote more time working on security selection.
C. devote more time to better understand their clients’ preferences of risk.
Q.33 Dylan Farmer is an active portfolio manager who uses an industry rotation strategy. How should
he most likely treat stocks in a cyclical industry during a contraction phase?
A. Overweight the industry.
B. Underweight the industry.
C. Maintain the target weight of the industry.
Q.34 T he financial details of a financial transaction are given below:
Assuming there are no transaction and borrowing costs, the rate of return on a margin transaction
for an investor who purchased the stock on Jun 30, 2015, using an initial margin requirement of 35%
and the stock price at which the investor would have received a margin call given a 25% margin
requirement is closest to:
A. Return: 10.99%; Margin Call Price: $26.00.
B. Return: 20.41%; Margin Call Price: $24.27.
C. Return: 20.41%; Margin Call Price: $26.00.
Q.35 A stock's limit order book is as follows:
If an investor places a new sell limit order for 150 shares at £26.32, the limit order is most likely said
to be:
A. an iceberg order.
B. behind the market.
C. making a new market.
Q.36 In a semi-strong efficient market, investors should most likely consider:
A. active portfolio management strategies.
B. passive portfolio management strategies.
C. an enhanced indexing strategy that is dependent on trading patterns.
Q.37 An investor short-sells a stock at $90. A few days later, the stock is now trading at $72. What is
the most appropriate action that the investor must take if he wants to hold on to his investment as
long as the price does not go back up to $80?
A. Stop order to buy at $80.
B. Stop order to sell for $80.
C. Limit order to buy at $80.
Q.38 Which of the following investors in the U.S stock market would most likely earn the highest
return in their local currency in the event of a depreciating dollar and increasing U.S equity prices?
A. A U.S. investor who reinvests dividends.
B. A non-U.S. investor who reinvests dividends.
C. A non-U.S. investor who does not reinvest dividends.
Q.39 Which of these best describes the shape of the slope of the experience curve, which
illustrates the cumulative units of production relative to the direct cost per new unit produced?
A. Upward sloping.
B. Downward sloping.
C. Upward sloping in early years and downward sloping in later years.
Q.40 A small investor just bought 100 shares of UYA on margin. T he share price of UYA at the time
of purchase was $50, the initial margin requirement was 50%, and the maintenance margin was 30%.
Given this information, the margin call trigger price is closest to:
A. $35.71
B. $70.00
C. $79.00
Q.41 In the event of default, which of the following is most likely to have the lowest priority of
claims?
A. Senior Secured Debt.
B. Senior Unsecured Debt.
C. Senior Subordinated Debt.
Q.42 If a firm enters into a repo agreement to sell a 5.75% 10-year bond with a par value of $1
million and a market value of $980,000 for $945,000 and to repurchase it 120 days later for $955,000,
then the repo margin is closest to:
A. -3.57%.
B. -2.55%.
C. 2.62%.
Q.43 Which of the following statements is/are most accurate? I. For a lender, loans with higher loan
value (i.e., LT Vs) are less risky because the borrower has more to lose in the event of default. II.
Mortgages to borrowers of lower credit quality or that have a lower priority claim to the collateral
in the event of default are called prime loans
A. II only.
B. I and II.
C. Both I and II are incorrect.
Q.44 Which of the following class of commercial papers most likely requires registration with the
SEC in the United States?
A. Securities with an original maturity in excess of 180 days.
B. Securities with original maturity in excess of 270 days.
C. Securities with original maturity in excess of 1 year.
Q.45 A bond with a $1,000 par value has a conversion price of $50 and, the market price of the
common share is $75. T he conversion value is closest to :
A. $925.
B. $950.
C. $1,500.
Q.46 What does an “excess of 100 PSA” prepayment model assumption developed by the Public
Securities Association (PSA) most likely indicates?
A. Prepayments are faster than the benchmark.
B. Prepayments are slower than the benchmark.
C. Prepayments are not correlated with the benchmark PSA value.
Q.47 A $1,000 par value 5% semi-annual coupon bond has a Macaulay duration of 3.59 years. Which
of the following is most accurate?
I. If yields increase by 100 basis points, then the bond’s price will drop by approximately
3.59%.
II. If the yields increase by 1%, the bond would need to be held for approximately 3.59 years
before the decrease in price would be offset by the gain in reinvested coupons.
A. I only.
B. II only.
C. Both I and II
Q.48 A $1,000 par value bond with 6% annual coupons matures in 2 years. If the required rate of
return on the bond is 11%, then the current yield on the bond using simple compounding is closest
to:
A. 0.35%
B. 5.78%
C. 6.56%
Q.49 A bond has an annual modified duration of 5 years and a convexity of 92. Given a 350 bps
increase in yield, the approximate percentage price change of the bond is closest to:
A. -11.87%
B. -6.23%
C. 9.52%
Q.50 A 10% annual coupon corporate bond maturing in two years is trading at of 100.75. T he twoyear,
8% annual payment government benchmark bond is trading at of 100.95. If the one-year and
two-year government spot rates are 2.4% and 3.5%, respectively, stated as effective annual rates,
then the G-spread is closest to:
A. 190 bps.
B. 200 bps.
C. 210 bps.
Q.51 Which of the following bonds is least likely to make periodic coupon payments
I. Pure discount bonds
II. U.S. T reasury Bills
III. Plain vanilla bonds
A. I only.
B. I and II only.
C. I, II and III.
Q.52 Debt instruments that allow an investor to take possession of an asset and pay for it over time
are most likely known as:
A. collateral trust bonds.
B. equipment trust certificates.
C. mortgage-backed securities.
Q.53 Which of the following statements is/are most accurate?
A. T he 'Actual/Actual' and '30/360' are commonly used to calculate corporate and
government bond days.
B. T he 'Actual/Actual' convention is commonly used to calculate days in government bonds,
and the '30/360' convention is commonly used to calculate days in corporate bonds.
C. T he 'Actual/Actual' convention is commonly used to calculate days in corporate bonds, and
the '30/360' convention is commonly used to calculate days in government bonds.
Q.54 Securitization is a process by which financial assets are purchased by an entity that then issues
securities supported by the cash flows from those financial assets.
Which of the following are the least likely primary benefits?
A. An increase in the liquidity of the underlying financial assets.
B. An increase in credit rating from banks and other financial institutions.
C. A reduction in funding costs for firms selling the financial assets to the securitizing entity.
Q.55 A $1,110 premium bond has a modified duration of 4.562. In response to a 0.5% increase in
YT M, the price of the bond should most likely :
A. fall by approximately 2.281%.
B. fall by approximately 0.2281%.
C. rise by approximately 2.281%.
Q.56 A repurchase agreement is most likely similar to:
A. an auction.
B. a barter transaction.
C. a collateralized loan.
Q.57 Matrix pricing is most likely used for determining the price of:
I. New bonds
II. Actively traded bonds
III. Inactive bonds
A. I only.
B. I and III only.
C. I, II and III.
Q.58 A bond selling for par currently has a 9% yield. If the bond price increases to 102.5 when yields
fall ten basis points and the price falls to 96 when yields rise by ten basis points, then the bond's
effective duration is closest to:
A. 20.85
B. 31.25
C. 32.50
Q.59 As compared to shorter maturity bonds, similar longer maturity bonds tend to have:
I. Less credit risk.
II. Wider spreads.
A. II only.
B. I and II.
C. None of I and II
Q.60 Which of the following derivative contracts will most likely expose the contract owner to
default risk?
I. Futures
II. Forwards
III. Options
IV. Swaps
A. II and IV.
B. I, II, and IV.
C. I, II, III, and IV.
Q.61 Which of the following is/are least likely exchange-traded derivative instruments?
I. Futures
II. Forwards
III. Options
IV. Swaps
A. I and III.
B. II and IV.
C. I, II, and IV.
Q.62 Given a spot price of $38, the strike price of $31, and the payoff on the riskless bond is $2.T he
payoff of a fiduciary call option is closest to:
A. $7
B. $8
C. $9
Q.63 Which of the following conditions will most likely decrease the value of a call option?
A. Increase in volatility.
B. Increase in stock price.
C. Decrease in the risk-free rate.
Q.64 T he Value of a European call at expiration is most likely :
A. an exercise value greater than zero or the value of the underlying minus the exercise
price.
B. an exercise value greater than zero or the exercise price minus the value of the
underlying.
C. the greater the exercise price minus the value of the underlying or the value of the
underlying minus the exercise price.
Q.65 Stocks of Orange Corp. are trading at $60, and the strike price of 6-month put options is $40.
Given the price of the 6-months put option on Orange Corp. is $2, and the risk-free rate is 8%, the
price of the call option is closest to:?
A. $23.51
B. $29.81
C. $33.32
Q.66 Which of the following statement(s) is/are most likely to be correct regarding derivatives?
I. Derivatives are similar to insurance in that both allow for the transfer of risk from one party to
another
II. Derivatives derive their performance from the performance of an underlying asset
III. T he writer of an options contract is referred to as the short because he/she holds a short
Position
A. I and III.
B. II and III.
C. I, II, and III.
Q.67 Which of the following is the least likely characteristic(s) of exchange-traded derivatives
markets?
A. T ransparency.
B. Lower degree of regulation and oversight.
C. Standardization of contract terms and conditions.
Q.68 From the put-call parity, the long bond is most likely equivalent to:
A. Long asset, short put, long call.
B. Long asset, long put, short call.
C. Short asset, long put, long call.
Q.69 Which of the following is least likely a terminology used to identify venture capital investment
at different stages of a company's life?
A. Formative Stage.
B. Middle Stage.
C. Later Stage.
Q.70 Which of the following is most likely to be (a) key reason(s) for investing in real estate?
I. Potential to provide an inflation hedge if rents can be adjusted quickly for inflation.
II. T he prospect that multiple-year leases with fixed rents for some property types may lessen
cash flow impact from economic shocks.
III. Potential for competitive long-term total returns-driven by both income generation and
capital appreciation.
A. All of the above.
B. I & III only.
C. II & III only.
Q.71 Strategies that use technical analysis to identify companies that are under and overvalued and to
ascertain relationships between securities are known as:
A. Fundamental value.
B. Quantitative directional.
C. Fundamental growth.
Q.72 Which of the following is least likely a compensation structure used in alternative investments?
A. Dividends.
B. Soft-hurdle rate.
C. High watermark.
Q.73 Which of the following statement(s) are most likely to be correct regarding typical
contemporary hedge funds?
I. T hey have high investment restrictions and have a goal of generating high returns, either in
an absolute sense or over a specified market benchmark.
II. T hey are set up as private investment partnerships open to a limited number of investors.
III. T hey have an aggressively managed portfolio of investments across asset classes and regions
that is leveraged and/or use derivatives.
A. I and II.
B. II and III.
C. I, II, and III.
Q.74 Convenience yield most likely refers to the benefit of:
I. Holding an asset for sale.
II. Being able to take advantage of volatility in the market to sell high.
III. Using the asset on demand if necessary.
A. I &III only.
B. II only.
C. All of the above.
Q.75 XYZ Hedge fund charges a management fee of 2% based on assets under management at yearend
and a 20% incentive fee. T he initial investment is GBP 125 million, and the fund earns a 40
percent return in its first year. What are the fees earned by XYZ Hedge fund if incentive fee is
computed based net of management fee? Assume management fees are calculated using end-of-period
valuation?
A. GBP 5.8 million.
B. GBP 13.5 million.
C. GBP 12.8 million.
Q.76 Which of the following is/are most likely to be characteristic(s) of alternative investments?
I. Low level of regulation
II. High use of leverage
III. High correlation to systematic risk
A. I & II.
B. II & III.
C. All of the above.
Q.77 Strategies that focus on the relative value between a variety of asset-backed securities and
mortgage-backed securities and seek to take advantage of mispricing across different asset-backed
securities are known as:
A. Fixed income convertible arbitrage.
B. Fixed income asset-backed.
C. Activist.
Q.78 Which of the following is/are least likely accurate regarding the Leveraged buyouts (LBO)?
A. In LBOs, the acquisition of a target company is funded through debt.
B. In LBOs, the acquiring company’s cash flows are used to service the debt.
C. After the buyout, the target company becomes or remains a privately owned company.
Q.79 Which of the following is most likely the first-order risk measure of the change in the option
price for a change in the underlying asset's volatility?
A. Rho.
B. Vega.
C. Gamma.
Q.80 Which of the following is least likely a characteristic of open-ended mutual funds?
A. An open-end structure makes it easy to grow in size but creates pressure on the portfolio
manager to manage the cash inflows and outflows.
B. New shares are created and sold at a premium or a discount to net assets values depending
on the demand for the shares in open-end funds.
C. Open-end funds accept new investment money and issue additional shares to existing or
new investors. T herefore, the number of outstanding shares changes after every new
investment.
Q.81 A portfolio had the following annual rates of return:
T he portfolio’s manager states that the return for the period is 5%. T he manager is most likely
referring to:
A. holding period return.
B. arithmetic mean return.
C. geometric mean return.
Q.82 BCG Bank has a one month Value at Risk (VaR) of $400 million with the probability of 5%, and
hence it most likely refers to:
A. loss of $20 million will occur one month from now.
B. one month maximum loss of $400 million will occur 5% of the time.
C. one month minimum loss of $400 million will occur 5% of the time.
Q.83 Which of the following are sentiment indicators?
I. Relative strength index (RSI)
II. CBOE Volatility Index
III. Short interest ratio
IV. Put/call ratio
V. Moving average convergence-divergence (MACD)
VI. Stochastic oscillator
A. I, II, and V.
B. II, III, and IV.
C. II, V, and VI.
Q.84 T he line that represents the combination of the optimal risky portfolio and the risk-free asset is
most accurately known as:
A. efficient Frontier.
B. indifference curve.
C. capital allocation Line.
Q.85 Which of the following is/are the most likely similarity(ies) between exchange-traded funds and
closed-end funds?
I. Both types of funds are passively managed to match a particular index.
II. In both types of funds, the market price of shares and the net asset value (NAV) can differ
significantly.
III. Both types of funds can be sold and purchased on the open market.
A. III.
B. I and II.
C. I and III.
Q.86 T he data collected from such devices as smart phones, cameras, RFID chips, is referred as:
A. generated by sensors.
B. generated by individuals.
C. generated by business processes.
Q.87 Ben Carter, CFA, is an equity analyst and is assigned to discount the net present value (NPV) of
Indo Inc., which has 40% of debt in its capital structure. T he discount rate Carter should use if the
after-tax cost of debt is 7%, the risk premium is 11%, the risk-free rate is 2%, and the Beta of Indo is
0.8 is closest to:
A. 9.40%
B. 9.28%
C. 10.80%
Q.88 An analyst gathered this information about two stocks:
What is the covariance between A and B if their correlation coefficient is 0.4?
A. 0.00012
B. 0.0069
C. 0.043
Q.89 Four portfolios have the following expected returns and risk:
A risk-neutral agent choosing from these portfolios would most likely select:
A. Portfolio A
B. Portfolio B
C. Portfolio C
Q.90 An analyst gathered this information about two stocks:
T he covariance between A and B is closest to
A. 42.21
B. 43.21
C. 45.91