1 Assume that interest rates on 20 year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows T bond 3 7 A 5 5 AAA 4 6 BBB 7 1 The differences in rates among these issues were most probably caused primarily by Tax effects Default risk premium Maturity risk premium Liquidity risk premium The company specific risk is relevant for stocks held in a well diversified portfolio It is defined as the contribution of a security to the overall riskiness of the portfolio, and measured by stock beta True False 4 Which of the following statements is correct It is usually more difficult to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship Corporate shareholders are exposed to unlimited liability Corporations generally face fewer regulations than partnerships Corporate shareholders are exposed to limited liability, and this factor may be compounded by the tax disadvantages of incorporation 3 Perpetuity is a type of annuity which has infinite period of payments The present value of a perpetuity equals to the annual payment divided by the required rate of return True False 6 which of the following is not true Agency problem is that managers may act in their own interests and not on behalf of stockholders Corporate governance can help control agency problems Corporate governance is the set of rules that control a companys behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community Agency problems can be perfectly and permanently solved with corporate governance 10 Which of the following statements about an ETF portfolio is true The expected return of an ETF portfolio is the weighted average of the expected returns of all individual ETFs in the portfolio The standard deviation of an ETF portfolio is not the weighted average of the standard deviations of all individual ETFs in the portfolio The beta value of an ETF Portfolio is the weighted average of the beta values of all individual ETFs in the portfolio All of the above statements are true which of the following is not correct Agency problem is that managers may act in their own interests and not on behalf of stockholders Corporate governance can help control agency problems Corporate governance is the set of rules that control a companys behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community Agency problems can be perfectly and permanently solved with corporate governance You just inherited $10,000 You are investing this money for 4 years at 5 compounding interest In whole dollars, how much money will you have at the end of the four years $10,500 $12,500 $12,155 $12,000

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1. Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: T-bond = 3.7%;

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: T-bond = 3.7%; A = 5.5%; AAA = 4.6%; BBB = 7.1%. The differences in rates among these issues were most probably caused primarily by:

Tax effects.

Default risk premium.

Maturity risk premium

Liquidity risk premium.

The company-specific risk is relevant for stocks held in a well-diversified portfolio. It is defined as the contribution of a security to the overall riskiness of the portfolio, and measured by stock beta.

True.

False.

4. Which of the following statements is correct?

		It is usually more difficult to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.
		Corporate shareholders are exposed to unlimited liability.
		Corporations generally face fewer regulations than partnerships.
		Corporate shareholders are exposed to limited liability, and this factor may be compounded by the tax disadvantages of incorporation.

3. Perpetuity is a type of annuity which has infinite period of payments. The present value of a perpetuity equals to the annual payment divided by the required rate of return.

True

False

6. which of the following is not true

		Agency problem is that managers may act in their own interests and not on behalf of stockholders.
		Corporate governance can help control agency problems.
		Corporate governance is the set of rules that control a companys behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community.
		Agency problems can be perfectly and permanently solved with corporate governance.

10. Which of the following statements about an ETF portfolio is true?

		The expected return of an ETF portfolio is the weighted average of the expected returns of all individual ETFs in the portfolio.
		The standard deviation of an ETF portfolio is not the weighted average of the standard deviations of all individual ETFs in the portfolio.
		The beta value of an ETF Portfolio is the weighted average of the beta values of all individual ETFs in the portfolio.
		All of the above statements are true

which of the following is not correct

		Agency problem is that managers may act in their own interests and not on behalf of stockholders.
		Corporate governance can help control agency problems.
		Corporate governance is the set of rules that control a companys behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community.
		Agency problems can be perfectly and permanently solved with corporate governance

You just inherited $10,000. You are investing this money for 4 years at 5% compounding interest. In whole dollars, how much money will you have at the end of the four years?

$10,500

$12,500

$12,155

$12,000