The number of common shares outstanding of a firm = 1,000. Stock price = $20/share. EPS = $2/share every year. This firm plans to issue new shares to raise $10,000, which will be invested in a new project. Managers expect this new project to generate $1,200 every year. However, new shareholders believe that this new project will generate annual cash inflow of $1,500 forever. Assume that (1) the required rate of return on new shares = 10%, and (2) the price of new stock is based on the belief of new shareholders. Accordingly, the price of new stock = X.
X值會落在以下哪一個區間?
20~21
21.1~21.5
21.6~22
22.1~23
23.1~24
24.1~25
25.1~26
lower than 20
higher than 26
None of the above
The number of common shares outstanding of a firm = 1,000. Stock price = $20/share. EPS = $2/share every year. This firm plans to issue new shares to raise $10,000, which will be invested in a new project. Managers expect this new project to generate $1,200 every year. However, new shareholders believe that this new project will generate annual cash inflow of $1,500 forever. Assume that (1) the required rate of return on new shares = 10%, and (2) the price of new stock is based on the belief of new shareholders. Accordingly, the price of new stock = X.
What is the REALIZED EPS after the stock issuance if managers’ information is correct?
3.0~2.9
2.9~2.8
2.8~2.7
2.7~2.6
2.6~2.5
2.5~2.4
2.4~2.3
2.3~2.2
2.2~2.0
None of the above
The value of stock index futures per contract is $1 million. The deposit (as defined by margin requirement) per contract is $100,000. Your own capital is $6 millions. The Beta of your investment position is 5, while the stock market portfolio’s Beta is 1. Risk-free rate = 5%. Cash dividend yield = 2%. Stock index now = 8,000. To achieve your target Beta at 5, you should (1) by X contracts of this futures, and (2) buy $Y of government bond.
The value of X will be:
30~40
40~50
50~60
60~70
70~80
smaller than or equal to 29
larger than or equal to 81
The value of stock index futures per contract is $1 million. The deposit (as defined by margin requirement) per contract is $100,000. Your own capital is $6 millions. The Beta of your investment position is 5, while the stock market portfolio’s Beta is 1. Risk-free rate = 5%. Cash dividend yield = 2%. Stock index now = 8,000. To achieve your target Beta at 5, you should (1) by X contracts of this futures, and (2) buy $Y of government bond.
The value of Y should be:
2.0 million~2.9 million
3.0 million~3.9 million
4.0 million~4.9 million
5.0 million~5.9 million
smaller than 2.0 million
6.0 million
0~0.1
0.11~0.2
0.21~0.3
0.31~0.4
0.41~0.5
higher than 0.5
-0.41~-0.5
-0.31~-0.4
-0.21~-0.3
0~-0.2
According to MM Theory (no tax, no information asymmetry), how many of the following will remain the same if a company borrows and then uses the loan to buy back the stock: Expected return on equity, cost of the company’s capital, stock price, stock’s risk, risk on the company’s assets:
0
1
2
3
4
5
The major difference between options and futures is
the type of underlying asset
the type of underlying asset
the multiplier of the contract
the obligation or right to exercise the contract
The two are basically the same
Can we identify the size effect based on the following table?
ME/BE of stock |
Observed annual stock return |
Beta (i.e., b) |
1 = the smallest |
20% |
1.2 |
2 |
15% |
1.1 |
3 |
12% |
1.0 |
4 |
6% |
0.9 |
5 = the largest |
4% |
0.8 |
Risk-free rate = 2% a year. ME/BE = market value of equity ÷ book value of equity. Suppose the market portfolio is the equally-weighted stock index. |
Yes
No
You have $10,000. ETF price = $100/share. Call option on ETF (exercise = $110, maturity = 1 year) is priced at $10/unit. Put option on ETF (exercise price = $90, maturity = 1 year) is price at $10/unit. You buy ETF for $9,000, buy put option on ETF for $1,000, hold on for 1 year. What is your largest possible loss?
0~-0.5%
-5.1%~-10.0%
-10.1%~-20.0%
-20.1%~-30.0%
None of the above
Which of the following observations would provide evidence against the strong form of efficient market theory? (I) Mutual fund managers do not on average make superior returns (II) In any year approximately 50% of all pension funds outperform the market (III) Managers who trade in their own firm’s stocks make positive abnormal returns.
I only
II only
I and II only
III only
I and III
II and III
None of the above
The fact that stock abnormal returns over 3 years following IPO are positive is:
consistent with weak-form market efficiency
consistent with semi-strong-form market efficiency
consistent with strong-form market efficiency
The above three answers are correct
inconsistent with weak-form market efficiency
inconsistent with semi-strong-form market efficiency
inconsistent with strong-form market efficiency
None of the above
The opportunity to defer investing to a later data may have value because:
the cost of capital may increase in the near future
uncertainty may be increased in the future
Investment costs fluctuate over time
Interest rate may go up in the future
Market conditions may change and increase the NPV of the project
Buying the stock and the put option on the stock provides the same payoff as:
Short selling stock and buying a call option on stock
Investing the present value of the exercise price in government bond and buying the call option on stock
Writing (selling) a put option and buying a call option on stock
None of above
Which of the following is most likely used to reduce the risk of negative interest rate spread (負利差) facing the insurance industry?
buy put option on interest rate
buy interest rate futures
sell call option on interest rate
sell interest rate swap
buy short-term government bond
None of the above
Firm A is planning to acquire Firm B. If Firm A prefers to make a stock offer for the merger, it empirically indicates that:
Firm A’s managers are optimistic about the post merger value of A
Firm A’s managers are pessimistic about the post merger value of A
Firm A’s managers are neutral about the post merger value of A
The market is efficient
Under what conditions would a policy of maximizing the value of the entire company not be the same as a policy of maximizing shareholders’ wealth?
If an issue of debt affects the value of existing debt
If the issue of debt increases the probability of bankruptcy
If the firm issues debt for the first time
If the beta of equity is changed when the company changes the capital structure
Normal and lognormal distributions of stock returns are completely specified (summarized) by:
mean
standard deviation
third moment
(1), (2) and (3) above
(1) and (2) above
None of the above
The following data on a merger is given:
Firm A
Firm B
Firm A + B (after merger)
Price per share
$100
$10
Total earnings
$500
$300
Shares outstanding
100
40
Total value
$10,000
$400
$11,000
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B’s stock. Calculate A’s NPV from the merger.
Lower than $100
101~150
151~200
201~250
251~300
301~400
401~500
Higher than 500
The following data on a merger is given:
Firm A
Firm B
Firm A + B (after merger)
Price per share
$100
$10
Total earnings
$500
$300
Shares outstanding
100
40
Total value
$10,000
$400
$11,000
(Using the information of above question) If firm A pays in cash, the post-merger-announcement price per share for Firm A’s stock = X. The post-merger-announcement per share price for Firm B’s stock = Y. Then, X-Y=?
0~50
51~100
101~150
151~200
None of the above
A call option has an exercise price of $150. At the final exercise date, the stock price could be either $100 or $200. Which investment would combine to give the same payoff as the stock?
Lend PV of $100 and buy two calls
Lend $100 and buy two calls
Lend PV of $100 and sell two calls
Lend $100 and sell two calls
Borrow PV of $100 and buy two calls
Borrow $100 and buy two calls
Borrow PV of $100 and sell two calls
Borrow $100 and sell two calls
None of the above
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