Corporate Finance
Pre-Test Questions
Course Introduction
Corporate Finance explores the fundamental principles and techniques used by organizations to manage their financial resources effectively. The course covers key topics such as capital budgeting, financial statement analysis, risk and return, cost of capital, capital structure, dividend policy, and working capital management. Students will learn how financial managers make investment and financing decisions to maximize firm value, assess corporate financial performance, and understand the impact of financial markets and instruments. Real-world case studies and practical examples provide insights into how theory is applied in actual corporate settings, preparing students for careers in finance, investment banking, and business management.
Recommended Textbook
Investments Concepts and Applications 5th Edition by Richard Heaney
Available Study Resources on Quizplus
20 Chapters
802 Verified Questions
802 Flashcards
Source URL: https://quizplus.com/study-set/3344 Page 2
Chapter 1: The Investment Decision
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66449
Sample Questions
Q1) The lognormal distribution is symmetrical.
A)True
B)False
Answer: False
Q2) Charles invests in a price-weighted portfolio of two shares,ABC and XYZ.His funds manager sends him a statement of his performance at the end of each year for his tax return.Unfortunately,some of the form was illegible,and all he could discern was that the price-weighted portfolio return was 10%,the returns on ABC and XYZ were 8% and 16%,respectively and that the purchase price of ABC was $10.Given this information,at what price did Charles purchase the shares in company XYZ?
A) \(\$ 2.50\)
B) \(\$3.33\)
C) \(\$ 3.75\)
D) \(\$ 4.25\)
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: Australian Financial Markets
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66450
Sample Questions
Q1) Company XYZ initially has a share price of $1.The company makes a rights issue on the basis of 1 for every 1 held,with a subscription price of $0.50.Calculate the ex-rights price of the XYZ shares.
A) \(\$ 0.25\)
B) \(\$ 0.75\)
C) \(\$ 1.25\)
D) \(\$ 1.50\)
Answer: B
Q2) Trading on the Australian stock exchange is conducted on the SEATS system. A)True
B)False
Answer: False
Q3) An accumulation index differs from a price index because it assumes that dividends are reinvested back into the stock.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: The International Investment Environment
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66451
Sample Questions
Q1) Given the information contained in the table regarding a foreign investment an Australian investor made in the US,what is the discrete Australian dollar (AUD)return over the period?
A) \( 15.56 \% \)
B) \( 7.0 \% \)
C) \( 17.0 \% \)
D) \( 17.6 \% \)
Answer: A
Q2) Which of the following characteristics typically applies to an emerging market?
A) It has existed for less than five years.
B) It is based in a third-world country.
C) It has a large degree of inflation.
D) It has recently undergone a large period of growth
Answer: D
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Financial Management: Derivative Instruments
and Information Sources
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66452
Sample Questions
Q1) Which of the following is not a provider of share price information?
A) ABS
B) AAP Reuters Economic Services
C) AGSM
D) ASX
Q2) With futures the All Ordinaries Index (AOI)can be traded as separate security.
A)True
B)False
Q3) Which information source specialises in emerging market data?
A) Datastream
B) Compustat
C) Futures Industry Association
D) International Finance Corporation
Q4) The Consumer Price Index (CPI)is designed to capture price movements in the general economy.
A)True
B)False
Page 6
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Money Market Securities
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/66453
Sample Questions
Q1) The value of a bank-accepted bill with a face value of $100 000,180 days to maturity and a current yield of 4% p.a.is $98 066.
A)True
B)False
Q2) A $500 000 180-day note is purchased with a yield of 6% and sold 90 days later with a yield of 4.5%.Calculate the continuously compounded holding period return for this note over the 90 days.
A) \( -2.42 \% \)
B) \( -2.40 \% \)
C) \( 2.40 \% \)
D) \( 2.42 \% \)
Q3) What would be the maturity price of a promissory note with a term of 90 days,interest rate of 5.7% and a face value of $100 000?
A) \( \$ 94 \quad 607 \)
B) \( \$ 98 \quad 595 \)
C) \( \$ 98 \quad 614 \)
D) \( \$ 99 \quad 021 \)
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Bonds
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/66454
Sample Questions
Q1) A $100 000 bond has a term to maturity of six years with half-yearly coupons set at 6% p.a.Calculate the bond price if the yield is 7.5%.
A) \( \$ 91 \quad 327.88 \)
B) \( \$ 92 \quad 447.23 \)
C) \( \$ 92 \quad 857.98 \)
D) \( \$ 93 \quad 231.96 \)
Q2) Calculate the duration (measured in six-monthly periods)of a bond with a price of $100,two years to maturity,and yield and coupon rates of 5% and 10% p.a.respectively.
A) \( 3.65 \)
B) \( 3.74 \)
C) \( 3.79 \)
D) \( 3.82 \)
Q3) Duration takes into account the non-linearity in the relationship between bond price and yield.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
8
Chapter 7: Investor Preferences and Portfolio Concepts
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66455
Sample Questions
Q1) Under a concave quadratic utility preference function with a constant term of 0.0001,a wealth level of 100 will have a utility of:
A) 9
B) 99
C) 109
D) 110
Q2) Given a portfolio of 50 shares,how many variance and unique covariance terms can be estimated using the Markowitz approach?
A) 50 variances; 1225 covariances
B) 50 variances; 1250 covariances
C) 49 variances; 1200 covariances
D) 49 variances; 780 covariances
Q3) Transitivity is one of the five important assumptions of the expected utility model.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
9
Chapter 8: Risky Asset Pricing Models and the Capm
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66456
Sample Questions
Q1) In using the CAPM with positively skewed asset returns,the estimate of expected returns must be adjusted upwards.
A)True
B)False
Q2) An asset in the Australian market has a beta of 1.0.If the variance of the asset is 10% and the variance of the market index is 25%,what is the asset's covariance with the market?
A) \( 2.50 \% \)
B) \( 10.0 \% \)
C) \( 25.0 \% \)
D) \( 30.0 \% \)
Q3) For international investors without access to imputation tax credits,the traditional form of the CAPM is not applicable.
A)True
B)False
Q4) A continuous time version of the CAPM was developed by Oliver (1997).
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Alternative Risky Asset Pricing Models
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66457
Sample Questions
Q1) The international CAPM avoids the critique regarding the identification of the market portfolio,as raised by Roll (1977).
A)True
B)False
Q2) One of the main problems with the arbitrage pricing theory is __________.
A)its use of several factors instead of a single market index to explain the risk-return relationship
B)the introduction of nonsystematic risk as a key factor in the risk-return relationship
C)that the APT requires an even larger number of unrealistic assumptions than does the CAPM
D)the model fails to identify the key macroeconomic variables in the risk-return relationship
Q3) The APT of Ross requires the assumption of quadratic utility.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Concepts and Applications of Market Efficiency
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66458
Sample Questions
Q1) An unbiased reaction is one where there is ___ to the arrival of new information.
A) a slight overreaction
B) a slight underreaction
C) a strong overreaction
D) no overreaction
Q2) Loyalists believe that the long-term patterns in returns are induced by institutional and/or research method problems such that the patterns are artificial and therefore not exploitable.Examples are:
A) changes in risk that are not accounted for when estimating abnormal returns
B) differences in firm size
C) problems in correctly estimating beta risk over different return intervals
D) all of these choices
Q3) The Australian study by Easton in 1990 found an insignificant jump in stock returns around extraordinary item announcements.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Equity Valuation Models
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66459
Sample Questions
Q1) The market capitalisation rate on the stock of Aberdeen Wholesale Company is 10%.Its expected ROE is 12%,and its expected EPS is $5.If the firm's plowback ratio is 50%,its P/E ratio will be _________.
A)8.33
B)12.5
C)19.23
D)24.15
Q2) The asset backing model of valuation operates by assuming the company is solvent and able to continue as an ongoing concern.
A)True
B)False
Q3) In the earnings capitalisation model,defining growth involves using the zero growth model,and then subtracting the present value of the growth opportunities.
A)True
B)False
Q4) If a share is trading above its P/E multiplier,then it is trading at a discount.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 12: Macro- and Industry Analysis of Share Markets
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66460
Sample Questions
Q1) Mature growth is the __________ stage in the industry life cycle.
A) stable
B) third
C) expansion
D) last
Q2) Possible variables explaining the risk premium include:
A) yield curve slope
B) dividend yield
C) bond default premium
D) all of these choices
Q3) The top-down investment approach identifies mispriced securities,and then forms a portfolio from them.
A)True
B)False
Q4) Layton (1994)models the Australian economy as a combination of periods of 'normal' and 'sluggish' growth.
A)True
B)False
Page 14
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: Qualitative Stock Selection
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66461
Sample Questions
Q1) In technical analysis,__________ is a value below which the market is relatively unlikely to fall.
A)book value
B)resistance level
C)support level
D)the Dow line
Q2) In the Australian share market,how much of the total market capitalisation is represented by the 10 largest companies?
A) \( 12 \% \)
B) \( 42 \% \)
C) \( 57 \% \)
D) \( 88 \% \)
Q3) Pattern - recognition statistical tools are used in technical analysis to:
A) see if the company is slightly overbought but no reversal is expected
B) see if the market is oversold and bullish
C) provide a firmer statistical basis for the identification of buy and sell signals
D) see if the company looks oversold and the outlook is bullish
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Quantitative Company Analysis
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66462
Sample Questions
Q1) You are able to obtain the items in the table from a company's balance sheet and profit and loss for 2009 and 2010.Given this information,calculate the receivables turnover for the firm for 2010.
A) \( 2.338 \)
B) \( 3.931 \)
C) \( 3.997 \)
D) \( 4.066 \)
Q2) The presence of fixed production costs causes operating profit to vary more than __________ over the business cycle.
A) variable costs
B) net profit
C) total costs
D) sales revenue
Q3) The Lonergan study in 1996 found that fund managers believe that goodwill accounting has a major impact upon the share price.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Futures and Forward Contracts
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66463
Sample Questions
Q1) A futures contract __________.
A)is a contract to be signed in the future by the buyer and the seller of a commodity
B)is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract
C)is an agreement to buy or sell a specified amount of an asset at whatever the spot price happens to be on the expiration date of the contract
D)gives the buyer the right,but not the obligation,to buy an asset some time in the future
Q2) An investor who goes short in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset.
A)pay;pay
B)pay;receive
C)receive;pay
D)receive;receive
Q3) The buyer of a forward contract assumes a short position.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
17
Chapter 16: Option Contracts
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66464
Sample Questions
Q1) A put option with 60 days to maturity,exercise price of $12.00 and the risk-free rate is 5% p.a.If a call option is trading at $2.30 and a put option with $0.06 and the current share price is $14.00,what is the arbitrage possible per contract according to put-call parity?
A) \( \$ 0.00 \)
B) \( \$ 0.02 \)
C) \( \$ 0.06 \)
D) \( \$ 0.10 \)
Q2) Given an expected price fall in the underlying asset,a reasonable strategy to profit from this information would be to sell a call written on the asset.
A)True
B)False
Q3) The most difficult parameter to estimate in the Black-Scholes model is the:
A) underlying asset price
B) risk-free rate of return
C) exercise price
D) one of the aboye
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Advanced Issues in Options
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66465
Sample Questions
Q1) Which of the following about CDS is correct?
A) CDS agreement is written on debt issued by a particular company
B) The CDS buyer makes regular payment to the CDS seller
C) If a credit event occurs, then the buyer of the CDS has the right to sell the company's debt to the CDS seller at its par value
D) All of these options
Q2) options can be used to control interest rate risk. allows borrowers to set a maximum interest rate,while . allows investors to set a minimum interest rate earned on their investment
A) Interest rate options, the floor, the cap
B) Currency options, the cap, the floor
C) Interest rate options, the cap, the floor
D) Currency options, the floor, the cap
Q3) The key difference between a call option written on the USD cost of the AUD and a put option written on the AUD cost of the USD is the standard deviation estimate.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 18: Alternative Investments
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66466
Sample Questions
Q1) The range of businesses in which private equity is held tends to be concentrated in:
A) services
B) retail and wholesale
C) the manufacturing sector
D) all of the above
Q2) Entrepreneurs are humans,but they do not suffer from arrogance and insolence.
A)True
B)False
Q3) Once adjusted for risk,the beta estimate of venture capital firms is approximately:
A) \( 0.7\)
B) \( 1.0 \)
C) \( 1.4 \)
D) \( 1.7\)
To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 19: Portfolio Management
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66467
Sample Questions
Q1) Interest rate anticipation is a bond _____________ approach and this requires second guessing the market and positioning the portfolio ____________ return.
A) portfolio; to minimise
B) market; investment
C) management; to maximise,
D) swapping; to improve
Q2) What kind concept refers to the tendency for investors to over-weight their portfolio in investments in their home country and under-weight international investment?
A) Home bias
B) Asset allocation
C) Portfolio management
D) Hedge fund
Q3) A major disadvantage of passive over active portfolio management strategies is the minimisation of transactions costs.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Performance Evaluation of Managed Funds
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/66468
Sample Questions
Q1) You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 6%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index.
\(\begin{array}{|l|c|c|c|}
\hline & \text { Average Return } & \text { Standard Deviation } & \text { Beat } \\
\hline \text { Fund A } & 24 \% & 30 \% & 1.5 \\
\hline \text { Fund B } & 12 \% & 10 \% & 0.5 \\
\hline \text { Fund C } & 22 \% & 20 \% & 1.0 \\
\hline \text { S\&P 500 } & 18 \% & 16 \% & 1.0 \\
\hline
\end{array}\)
The fund with the highest Sharpe measure is __________.
A)Fund A
B)Fund B
C)Fund C
D)Funds A and B are tied for highest
To view all questions and flashcards with answers, click on the resource link above.
Page 22