FIN 405 Quiz 4 Updated
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FIN 405 Quiz 4 NEW
In addition to the market-risk premium and a firm-size factor the Fama and French model adds
Consider an asset that currently plots below the security market line,
In equilibrium, if all investors will hold some combination of the market portfolio and the risk-free asset (according to the CAPM). An asset with higher variance and lower expected return than what could be obtained on the CML can survive:
The __________ tells us the composition of the optimal portfolio from a theoretical standpoint.
The __________ argues that stock returns are best explained by a three-factor model.
When its returns are regressed on the market’s, a stock with a high beta will have a __________ term in the regression.
According to the CAPM, the lower a security's beta, the __________ its exposure to systematic risk and the __________ its expected return.
Empirical tests have raised concerns about the CAPM, including:
The __________ quantifies the relationship between the expected return and standard deviation for portfolios consisting of the risk-free asset and the optimal risky portfolio.
A portfolio is __________ if it offers the highest expected return among the group of portfolios with equal or less volatility.
What should you do when calculating the IRR of and investment and generate multiple IRRs?
In practice, firms and capital budgeting rules,
When a firm regularly undertakes projects with positive NPVs, its stock price will rise because:
An advantage of the NPV rule over the IRR is:
What would shareholders prefer?
Britney is evaluating capital investments for three firms. The first firm has an unlimited capital budget and is looking at four independent projects. The second firm has several perfectly divisible potential projects, but faces capital rationing. The third firm is trying to decide between mutually exclusive projects. The best capital budgeting techniques for these situations would be __________, __________, and __________, respectively.
Conflicts between two mutually exclusive projects with greatly differing cash flow timing where the NPV method chooses one project but the IRR method chooses the other:
When using IRR, NPV, or PI in capital budgeting:
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