1.You are to recieve the following payments at the end of the following periods:

Year 1: $250

Year 2: $300

Year 3: $450

The interest rate is 15% per year.

What is the value of these cash flows in year 50?

a. $625,250

b. 361,219

c.$740,000

d. $1,083,657

e. $802,033

2.A new social media company- TwitChat - goes public and the new issue is introduced into the market.

Market participants include active investors that use fundamental analysis.

All investors have the same information and homogeneous expectations.

In CAPM framework, which is the most likely scenario when TwitChat goes public?

a. Active investor will bid Twitchat's price up or down until Twitchat's ratio of its contribution to the market's risk premium divided by its contribution to market's variance is he same as that of all other stocks. Active and passiv investor will have the same stock allocation because of homogeneous expectations.

b. Acive invstor wil bid Twitchat's price higher such that its expcted return equals that of all remaining stocks in the market portfolio. Passaive investors will hold TwitChat since it's now part of the market portolio.

c. Active investors will hold different amount of Twitchat and other stocks consistent with their respective risk & return expectation and utility functions. Passive investors will continue to hold the market portfolio and cash in different proportions based on their utility functions.

d. Each active investor will hold different amount of Twitchat and other stocks consistent with their respective return & risk exceptions. Passive investors will hold the market portfolio.

3.Assets A & B have standard deviations of 21% and 25% respectively and have a correlation coefficient of 0.65.

The expected return of A is 15% and the expected return of B is 16%.

The market portfolio has a standard deviation of 22%.

The correlation between A and the market portfolio is 0.35.

The correlation between B and the market portfolio is 0.45.

Which of the following is correct regarding the beta of portfolio A and beta of portfolio B?

a) beta A= beta B=1

b) beta A = 0.24:beta B = 0.36

c) cant tell from the information given - you need the retun data to run regression to determine the betas of A & B

d) beta A=0.95; BETA b= 1.14

e) beta A= 0.33; beta B=0.51

4.Which of the following statements is TRUE?

a. Securities are in equilibrium when all stocks have the same ratio of contribution to the market portfolio's risk premium divided by the contribution to the market portfolio's variance.

b.According to CAPM, A stock expected returnd depends on Beta Not Standard Deviation.

c.Microsoft, Apple. Google & FaceBook have delivered returns in excess of their CAPM i.e. they delivered postie alphas). This evidence disproves the semi-strong form of EMH.

d. None of these statements are true

e. In the CAPM regression, beta is the y-intercept and alpha is the slope of the best-fit regression line.