1. During an economic expansion (boom times), we would expect:

A. interest rates to increase.

B. interest rates to decrease.

C. interest rates to remain the same.

D. bank profits to decrease.

2- Consider the following bonds which all have a YTM of 5%p.a. and a face value of $1,000. Which bond's value has the greatest sensitivity to interest rate changes (interest rate risk)?

A. BondA.20-yearzerocouponbond

B. BondB.20-yearbondwith10%annualcoupons

C. Bond C: 3-year zero coupon bond

D. BondD.3-yearbondwith10%annualcoupons

3- Which of the following statements is true?

I. The dividend growth model is valid only if the dividend growth rate exceeds the stock's required return.

II. An increase in the dividend growth rate will increase a stock's market value, all else the same.

III. An increase in the required return on a stock will increase its market value, all else the same.

1. Ionly
2. IIonly
3. IIIonly
4. IandIIonly

4- In evaluating mutually exclusive capital projects, which of the following is TRUE of the payback period method?

A. ItwillalwaysproduceadecisionoutcomethesameasthedecisionoutcomeusingNet

Present Value method (NPV).

It considers the time value of money so can be seen as related to Internal Rate of

1. Return method (IRR).
2. Itwillrequireanarbitrarypaybackperiodtobesetasthedecisioncriteria.
3. BothAandBaretrue.

5- The part of risk that can be reduced by diversification is:

A. uniquerisk

B. non-diversifiablerisk

C. marketrisk

D. systematicrisk

6- The standard deviation of JB Hi Fi ordinary share returns is:

A. Ameasureofthesystematicriskofthatshare'sreturn.

B. Likelygreaterthanthestandarddeviationofawell-diversifiedportfolio.

C. Ameasureofthediversifiableriskofthatshare'sreturn.

D. BothAandBabove.

7- Which of the following characterize the early stages of an asset price bubble?

A. Growingeuphoriaaboutthefuturepriceofcertainassets.

B. Excessivepessimismabouttheeconomyandaboutfutureassetprices.

C. Stablehouseprices.

D. Stagnatingshareprices.

8-If a company wishes to issue shares to the public for the first time, it will undertake a(n)_________. If the underwriter guarantees the offer by buying the shares and reselling them to the public, that is a ______________ underwriting. Before buying the shares, investors must receive a copy of the ____________.

A. IPO,bestefforts,registrationstatement.

B. IPO,firmcommitment,prospectus

C. Seasonedoffering,bestefforts,registrationstatement

D. Seasonedoffering,firmcommitment,prospectus

9- Which of the following occurs when an adjustable-rate housing loan reaches the end of thehoneymoonperiod and has the regular loan repayment amount reset (such as in the lead up to the Global Financial Crisis of 2008)?

A. Theloanbecomesrepayableinfulltothelender.

B. Theinterestrateremainsthesamewhilerepaymentsincrease.

C. Theinterestrateincreasesandtheloanterm(loanperiod)doesnotchange.

D. Thelendersellstheunderlyingsecurity,beingthehouse.

10- Which of the following independent capital projects should be accepted?

1. Assume that all projects have conventional cash flows.
2. A. ProjectAonly
3. B. ProjectBonly
4. C. ProjectConly
5. D. ProjectAandConly

Required Return,k.

Project Internal Rate of Return (IRR)

Project A

20%

21%

Project B

20%

19%

Project C

15%

19