Please provide the correct answer and explanation as well.
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5. The Dividend Discount Model (DDM) a. is a valuation model only for companies that have paid dividends b. is a dividend distribution model used by corporate managers for dividend decisions C. is a valuation model for new issues only d. accounts for risk by discounting with a risk adjusted discount rate e. a and d 6. The efficient market hypothesis says (a) No one can ever beat the market over a ten year period (b) Insider trading should be illegal (c) Everyone should hold the same portfolio (d) None of the above 7. According to the liquidity premium theory, an upward sloping yield implies (a) Short-term rates are expected to rise (b) Long-term rates are expected to rise (c) Short-term rates are definitely not expected to decline (d) V10. If corporate insiders who buy stock in their companies earn the same risk adjusted return as other investors, then: (a) the market is not strong form efficient (b) the market is strong form efficient (c) they do not hold well diversified portfolios (d) then the beta of their portfolios must be one 1 1. To lend money starting at the beginning of next year for one year at a currently known rate you can: (a) sell short a two year security and buy a one year security (b) buy a two year security and sell short a one year security (c) buy a two year security (d) sell short a two-year security 12. One thousand dollars invested in a zero coupon bond with five years to maturity will produce the same amount of money after five years as $1000 invested in a 10 percent coupon bond with five years to maturity: (a) if they are both priced to yield 10 percent to maturity (b) if the investor can and does reinvest the coupons at the yield to maturity (c) if (a) and (b) hold (d) under no circumstances16. Which of the following five-year investments has the highest effective annual rate (a) An 8 percent coupon annual pay bond selling at 97 (b) An 8 percent coupon semi-annual pay bond selling at par (c) A zero coupon bond with $ 1 000 face value selling at $665 (d) They all have the same EAR 17. Suppose you buy a put option with a strike price of 100 for a premium of $10. Your maximum profit per share is (a) $10 (b) $100 (c) $90 (d) $110 18. If securities returns are serially correlated then: (a) the stock market is weak form efficient (b) the stock market is semi-strong form efficient (c) the stock market is strong form efficient (d) the stock market is weak form inefficient19. According to the expectations theory, an upward sloping yield curve implies (a) Future short-term rates are expected to rise (b) Long-term rates will be higher next year {c} a and b (d) You cannot tell 20. Which of the following is consistent with a random walk"?I (a) Tomorrow's stock price level is independent of today's stock price level (b) Tomorrow's returns are independent of today's returns (c) News does not affect stock prices (d) All of the above 21. Being long a call and short a put with the same exercise price and expiration is like: a. Long stock I). Short stock c. Long stock on margin d. Long a straddle 28. The Liquidity Premium theory says (2 are right}: a. The equilibrium 2 year rate = forward rate b. The equilibrium 2 year rate is greater than the average of the current and expected future short term rates c. The expected future short term rate = the forward rate d The expected rture short-term rate is less than the forward rate 29. The Liquidity Premium theory holds because investors are risk averse and because there are: at More 2 year investors than one year investors b. More 2 year securities than \"two-year\" investors c. More one year securities than one year investors d. All of the above 30. Assume a zero coupon bond has duration = 10 years and a 30 year bond has an 18% coupon and a duration =10 years. Assume lrther that the yields on both bonds are the same and then change by the identical innitesimally small amount Then, the price volatility of the 30 year will be: a. Equal to the price volatility of the zero b. Less than the price volatility of the zero c. Greater than the price volatility of the zero d. Can't tell 31. The ability to replicate an option with a position in the underlying stool: depends crucially on: (a) dynamically adjusting the hedge ratio on a continuous basis (b) correctly predicting tomorrow's stock price (c) properly estimating the stock's [3 (d) all of the above 32. Bonds with call provisions are a. more desirable than noncallable and generally higher priced in. less desirable than non callable and generally lower priced c, more desirable than non callable and generally higher priced d. are not worth buying 33. A party will enter a Swap agreement to: a} Reduce risk exposure on its balance sheet b) Speculate c) Immunization against interest rate changes d) Not enough information given to determine d. The call will be less than the minimum value 26. Which of the following represents an arbitrage opportunity where you would do the following: butr the call, sell the put and sell the stock: S=l]0, E=100, r=0, t=l a. P =2, C=12 b. P=5, C=15 e. P=12, C=23 d. P=5, C=12 2?. Assume you bought an 8% coupon bearing bond with 4 years to maturity at par and then sold it at a premium before maturity. If you were able to reinvest the coupons at the YTM, then: a. Return = YTM b. Return is less than YTM c. Return is greater than YTM d. You cannot tell 3. (a) (i) Define the factor of production 'Enterprise'. (ii) Outline two characteristics which make 'Enterprise' a unique factor of production. (iii) Do all entrepreneurs earn the same level of profit? Explain your answer. (30 marks) (b) A computer software engineer, who earns (40,000 annually in her current employment, decides to become an entrepreneur and set up her own business in which she expects to earn (75,000 annually. What is this entrepreneur's 'supply price? Explain your answer. (ii) If the business performs as expected, will the entrepreneur earn an 'economic rent"? Explain your answer. (15 marks) (c) Public services are labour intensive and as a consequence the public sector wage bill accounts for a significant proportion of government current spending. (i) Explain why Marginal Revenue Productivity (MRP) might not be a suitable method for setting wages in the Public Sector. (ii) Outline an alternative method for determining wage levels in the Public Sector. (iii) Identify possible ways in which the Minister for Finance could reduce the Public Sector wage bill. (30 marks) [75 marks] 4. (a) (i) Define the terms Gross Domestic Product at Current Market Prices and National Income. (ii) Explain the relationship between these two terms. (30 marks) (b) The Circular Flow of Income for an open economy describes the flows that influence the level of National Income. (i) State and explain three leakages from and three injections into the Circular Flow of Income in an open economy. (ii) Outline the effect on the level of employment in the economy if leakages exceed injections. Explain your answer. (20 marks) (c) The Central Bank of Ireland has predicted a slower rate of economic growth for the Irish economy in 2008. Discuss the economic consequences of a slower rate of economic growth for Ireland. (25 marks) [75 marks]
