Question 111pts

Which of the following statements concerning leverage is incorrect?

Group of answer choices

Higher levels of leverage allow investors to take greater risks.

Return on equity is given by return on assets multiplied by the leverage ratio.

Higher levels of leverage allow investors to make a higher return on equity in rising markets.

Return on assets is given by return on equity multiplied by the leverage ratio.

Banks are highly leveraged businesses.

Question 121pts

You have a call option which expires today relating to 1,000 shares in Internod. The strike price of the option is $81 per share. The option premium was $5 per share. Assuming the current price per share of Internod on the stock market is $85, would you exercise the option, and what would be your net profit or loss from having purchased this option?

Group of answer choices

I would exercise, as the option is showing a net profit of $5000.

l would exercise, but the option is showing a net loss of $1000.

I would not exercise, and the option is showing a net loss of $1000.

I would exercise, as the option is showing a net profit of $4000.

I would not exercise, as the option is showing a net loss of $4000

Question 131pts

Which of the following classes of capital market assets offers the highest return on average, from the perspective of an investor?

Group of answer choices

Ordinary shares in listed companies.

State government treasury bonds.

Bonds issued by investment grade non-financial corporations.

Preference shares in listed companies.

Bonds issued by financial corporations.

Question 141pts

The average dividend pay-out ratio across a stock market is 0.4. Investors require an expected rate of return on shares of 8% per year, to compensate them for the risks involved in making stock market investments. Corporate dividends are expected to grow at an average rate of 3% per year in the near future. This implies that the forward-looking average price-earning multiplier should be

Group of answer choices

5

13.3

3.6

10

8

Question 151pts

Suppose that a central bank cancels a portion of a country's outstanding currency at issue, as happened in India at the end of 2016. Which of the following effects will this have on the balance sheet of the central bank?

Group of answer choices

Liabilities will fall, and net worth will rise, due to the decrease in the value of notes held outside the central bank.

Nothing will happen, as currency does not appear on the balance sheet of the central bank.

Assets will fall, but net worth will rise, due to the decrease in the value of notes held outside the central bank.

Assets and net worth will both fall, due to the decrease in the value of notes held by the central bank.

Foreign exchange reserves will fall, since note issue and foreign exchange reserves must always be in balance.