Financial Markets

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Why is it A?? Page 448 literally says "alpha should not be significantly different from zero."
excess returns means E(R) for netflix is higher than other firms with the same volatility. alpha is the residual (residual is every number above or below the regressionline, in this case the regres line is SML. excess return means positve alpha, which means can be different from 0. (+ in this case)
How do you find the answer to this?
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How do you know that Cd=0 and Cu=4
haha okey: start by finding delta: (Cu-Cd)/(Su-Sd) --> Su = S*standard dev here its (35*0,2 =7, 7+35=) 42 same for Sd, this is 28. to find Cu and Cd: difference between Su and strike --> 42-38 makes 4 and since we do not exercise the option if we make losses, Cd is 0 instead of - 10. now u found delta. we gonna find B. B=(cd-delta*sd)/1+rf. just fill in the numbers to find B= -7.84... last but not least C= (delta*S + B )this makes 2.15, cheers lads
How do you calculate this?
Unlevered cost of capital is basically the pre tax WACC. We have the post tax WACC. In order to calculate the pre tax, we need the return on equity. This can be solved from the post tax WACC as following: 9%= (5/20)*(6%)*(1-4%)+(15/20)*Re SOLVE FOR Re Plug Re into the pre tax wacc = (5/20)*(6%) + (15/20)*Re Should get the answer!
if u do this u get wrong answer... how i got it: 0,06*(1-0,4)*(5/20)= 0,009 0,06*(5/20)=0,015 difference is 0,006 so add that to ur 9%. dont know if this is correct way to do it but hey it works... cheers
how? please help
can anyone please explain?
how to do this? especialy how to take rf in to account?
anyone got any summaries or tips on how to prepare for this exam would be very much appreciated :)
Go over the summaries and try to get the concepts of the formulas then do old exams
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How do i solve question 6?
They gave a lot of bonus points for the exam, right?
He must have given a whole bunch of points. Like, a lot.
Definitely A LOT. I had 32/60 and I passed.
4) Can we argue that there is a relationship between both as the Beta formula includes the Variance, which is the squared of the SD ?
I would
ABSOLUTELY! Beta is measured as covariance divided by variance. Since covariance is the multiplied variances of the market and the stock and since the variances are squared volatilities there should alway be a relationship.
Q15 must be totally wrong. I mean how can their earnings per share increase above their combined one without any added value? Can anyone confirm this too...?
It is wrong. They are actually asking for the price to earning ratio. In fact, if you do 20/EPS with EPS as 1,91 you get 10,41 that is in the answers. Just a very stupid mistake when formulating the question that makes you loose a lot of time and should be very easy for them to identify. Very very very superficial way of preparing a university exam.
Why is the answer 8000 ??! should it not be 9750 ?
(20000*0.65) - 5000 = 8000
53) p. 905: " Municipal bonds (“munis”) are issued by state and local governments. Their distinguish- ing characteristic is that the income on municipal bonds is not taxable at the federal level. (..). Some issues are also exempt from state and local taxes" He has to be kidding if he says that c) is a wrong statement only because some are exempt from local taxes..
deserve a complain
47) A complain here could clearly be that it is not specified what kind of note holder, since not every note is convertible
The reponse is B because : page 861 of the book : "Angel investors often circumvent this problem by hold- ing a convertible note rather than equity. In a typical deal, in exchange for their invest- ment, angels receive a note that is convertible into equity when the company finances with equity for the first time." accrued interest is never mentioned :)
Couldn't one argue that d) is also a correct answer? Since the option prices are observable in the market and with that and the black-scholes-formula you can calculate the implied volatility
I agree ! Had the same thoughts as you
17) A complain for this question could be that the stated question does not fit the answers
B) Employees ? He meant shareholders right ?
B should be false due to that mistake
42) The expected payoff of the bet is 50$, so clearly a risk neutral person, would be more than happy to pay 25$ for it, right?
34) Why is d) correct? I thought high leverage results in managers wanting to secure their job, thus taking less risk
31) What is the reasoning behind statement d) ? I get that an interest income tax rate of 51% corresponds to an effective tax rate of 0, but why would a higher tax rate lead to the fact that less taxes have to be paid?
Well...damn...I got 30/60, surely with that I won't pass, right? I am still gonna complain about 7 questions, hoping for the best. Good luck to the others, hope you do better than I did.
This exam deserves a storm of complaints! Give out your best!
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There were at least 10 questions in which you could argue either for more than one answer or for no correct answer. I am an exchange student, can someone tell me how to see the questions again and then complain about them? Or was I supposed to copy the whole freaking questions and take them with me? I marked them with stars, but I forgot the details of each question.
The exam itself and its answer key should be published on student portal asap.
What did you think about the exam? Hope we will have the answer key today
Too many theoretical questions, what's the point of those true or false questions whose answers look like dictionary paragraphs
so many mistakes in bothóuestions and answers...
Why is the answer A and not B ? When a takeover is cancelled isn't the price of the target stock supposed to decrease to its initial value ?
not taken over= nothing change
I think what A is saying, that all other firms in the industry who are not part of the acquisition, the acquisition will not lead to a decrease of their stock price. So not if the acquisition isnt succesful, just the fact that other firms' stocks arent negatively affected
How do you solve this?
whoever made the question is just being sneaky. Required return = E(Ri) sensitivity to the market risk = Beta Treasury bills returns = the risk free rate Market portfolio returns = market return So, Ri = 3 + 0.75*(7-3)
Does anyone know how to solve this?
I dont know how to immediately calculate the put price, but you can calculate the price of an identical call option and then use the put-call parity to calculate the put option
delta= 0-2.5/34.5-25.5 delta = -0.277778 B= (2.5-25.5*-0.27778)/1.03 =9.30 C=30*-0.27778+9.30=0.97 ==> C
Why is it A?
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Easier... You will be given 0,2 stocks for every stock you have so if you have five stocks you will end up having six stocks!
No, youll be given 1.2 stocks for ever stock you have, so if you have 5, youll get 1.2*5=6. 0.2*5 is only 1
Why is it C?
1. Under CAPM, return is only compensated through market risk and not idiosyncratic risk. Only beta and expected returns count, so you can cross out A,B and D because they have a higher beta than C but a lower expected return.
How do you calculate this?
It's 1.04 not 1.06
All the best for the exam!
how to find this??
It is in the formula sheet Corr(Ri, Rj) = (Cov (Ri, Rj)/(SD(Ri)*SD(Ri))) And then just solve for the covariance
(shares outstanding/dividend)*Tc
Where is it from ?
Which page or chapter can we find this ?
How to solve this question?
0.1=0.4*x+0.6*0.04 0.4x=0.076 x=0.19
Why is it B? On page 1031: "Besides increasing managers; risk exposure, increasing the sensitivity of managerial pay and wealth to firm performance has some other negative effects." Don't tell me the only thing that makes it false is the use of "while" vs. "besides," Because that is just ridiculous.
because your quote from the book says INCREASES, not decreases risk exposure so b is false
OH MY GODDDD. Argh that's annoying. Thanks!
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This exam is fucked up, the difficulty is too high compared to the shitty exercices that we had to prepare for the sessions
He was my tutor and said that this one is gonna be easier since 2 years ago was really easy and last year really hard
If someone can give me the formula for that one? I've tried everything I knew... Thanks in advance!
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If someone has an anwser, would be great :)
I think you need to set equation 17.7 equal to zero and then solve for Tg
Why does the answer sheet give C as an answer?
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How did you calculate it?
Because its all equity financed you have to use the unlevered cost of capital (pretax WACC) which is then = (20/25)*3%+(5/25)*2% = 2.8% so the answer is C.
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How to do question 45?
How to solve question 49?
You have to pay tax for holding cash which in this case would be 0.35*40=14 so answer B
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How to solve question 40?
How do you solve this?
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Calculation is as follows: 0.64 * 0.3 + 0.36 * 2.58, which results in 1.12, answer C.
Why do you not include the interest tax deduction ? If you do so the the cost of debt becomes 0.3*(1-0.35) = 0.195 which gives 1.05 as the Beta
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How to solve question 17?
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How to solve question 17?
alpha is the difference between the expected return and the realized return (found from CAPM). realized return is then = 2% + 1.386(5%) = 8.93%. Then, alpha = 9.5% - 8.93% = 0.57% (D)
How do you solve 50?
The value of a levered firm is the value of the unlevered firm plus the present value of the interest tax shield. In the case of permanent debt is the corporate tax rate multiplied by the amount of debt. Calculation is: TUV value = (15/0.12)+(50*0,35) = 142.5 (B)
are they not all true?
No, sovereign debt is only issued by national governments. local governments issue municipal bonds
No Sovereign debt is only issued by national governments while municipal bonds are issued by local governments or states
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