兹维博迪金融学第二版试题库7TB.doc

Chapter SevenPrinciples of Market ValuationThis chapter contains 30 multiple choice questions, 10 short problems and 5 longer problems.Multiple Choice1. In regard to an asset, the _ is defined as the process well-informed investors must pay for it in a free and competitive market.(a) analyst value(b) technical value(c) competitive value(d) fundamental valueAnswer: (d)2. In corporate finance decision making, an extremely important rule is to choose the investment that _ current shareholders wealth.(a) minimizes(b) maximizes(c) provides zero change in(d) jeopardizesAnswer: (b)3. In asset valuation, the method used to accomplish the estimation depends on the _.(a) number of participants(b) quality of calculating instruments(c) richness of the information set available(d) geographic locationAnswer: (c)4. The _ states that in a competitive market, if two assets are equivalent, they will tend to have the same market price.(a) Law of Real Interest Rates(b) Law of One Price(c) Law of Price Equivalency(d) Law of FuturesAnswer: (b)5. The Law of One Price is enforced by a process called _, the purchase and immediate sale of equivalent assets in order to earn a sure profit from a difference in their prices.(a) swapping(b) maximization(c) arbitrage(d) speculationAnswer: (c)6. _ refers to the totality of costs such as shipping, handling, insuring, and broker fees.(a) Shipping costs(b) Transaction costs(c) Installation costs(d) Insurance costsAnswer: (b)7. The Law of One price is a statement about the price of one asset _ the price of another.(a) absolute to(b) relative to(c) multiplied by(d) independent ofAnswer: (b)8. If an entity borrows at a lower rate and lends at a higher rate, this is an example of _.(a) opportunity arbitrage(b) interest-rate arbitrage(c) exchange arbitrage(d) nominal arbitrageAnswer: (b)9. If arbitrage ensures that any three currencies are freely convertible in competitive markets, then:(a) it is enough to know only one exchange rate to determine the third(b) we can estimate two exchange rates based on one exchange rate only(c) it is enough to know the exchange rates between any two in order to determine the third(d) it is necessary to know all three ratesAnswer: (c)10. Suppose you have $15,000 in a bank account earning an interest rate of 4% per year. At the same time you have an unpaid balance on your credit card of $6,000 on which you are paying an interest rate of 17% per year. What arbitrage opportunity do you face?(a) $240 per year(b) $600 per year(c) $780 per year(d) $1,020 per yearAnswer: (c)11. If the dollar price of Japanese Yen is $0.009594 per Japanese Yen and the dollar price of Chinese Yuan is $0.1433 per Chinese Yuan, what is the Japanese Yen price of a Chinese Yuan? (i.e., JPY/CNY)(a) 0.001375 JPY/CNY(b) 0.066950 JPY/CNY(c) 9.594 JPY/CNY(d) 14.936419 JPY/CNYAnswer: (d)12. If the dollar price of guilders is $0.5634 per Guilder and the dollar price of Euros is $1.5576 per Euro, what is the Euro price of the Guilder? (i.e., EUR/ANG)(a) 0.361700 EUR/ANG(b) 0.877552 EUR/ANG(c) 2.764643 EUR/ANG(d) 5.634 EUR/ANGAnswer: (d)13. Suppose the price of gold is 51.09 British pounds per ounce. If the dollar price of gold is $100 per ounce, what would you expect the dollar price of a British pound to be?(a) $1.95733 per GBP(b) $1.5109 per GBP(c) $0.5109 per GBP(d) $0.4891 per GBPAnswer: (a)Questions 14-18 refer to the following exchange rate table. To answer 14-18 you will have to fill in the missing exchange rates.U.S. Dollar(USD)Peso (MXN)Euro (EUR)Cdn Dlr (CAD)U.S. Dollar$1Peso10.398Euro0.6420Cdn Dlr1.000314. What is the Euro/Peso exchange rate? (i.e., EUR/MXN)(a) 0.617426EUR/MXN(b) 0.641807 EUR/MXN(c) 6.675516 EUR/MXN(d) 16.196262 EUR/MXNAnswer: (a)15. What is the Cdn Dlr/Euro exchange rate? (i.e., CAD/EUR)(a) 0.641807 CAD/EUR(b) 1.558099 CAD/EUR(c) 6.420 CAD/EUR(d) 16.196262 CAD/EURAnswer: (b)16. What is the Euro/Cdn Dlr exchange rate? (i.e., EUR/CAD)(a) 0.3583 EUR/CAD(b) 0.641807 EUR/CAD(c) 1.558099 EUR/CAD(d) 10.394 EUR/CADAnswer: (b)17. What is the Peso/Cdn Dlr exchange rate? (i.e., MXN/CAD)(a) 0.096201 MXN/CAD(b) 0.641807 MXN/CAD(c) 10.394882 MXN/CAD(d) 16.196262 MXN/CADAnswer: (c)18. What is the Peso/Euro exchange rate? (i.e., MXN/EUR)(a) 0.617426 MXN/EUR(b) 6.675516 MXN/EUR(c) 15.581112 MXN/EUR(d) 16.196262 MXN/EURAnswer: (d)19. You are travelling in FarOut where you can buy 130 kranes (a krane being the unit of currency of FarOut) with a U.S. dollar at official FarOut banks. Your tour guide has a relative who dabbles in the black market and this particular relative will sell you kranes for just $0.00833 each on the black market. How much will you lose or gain by exchanging $200 on the black market instead of going to the bank?(a) you would gain approximately 1,660 kranes(b) you would lose approximately 1,660 kranes(c) you would gain approximately 1,990 kranes(d) you would lose approximately 1,990 kranesAnswer: (d)20. In estimating the value of a share of a firms stock, a simple model is to :(a) divide EPS by a P/E multiple(b) multiply EPS by a P/E multiple(c) multiply EPS by EAT(d) divide EPS by market valueAnswer: (b)21. A firms earnings per share are $6 and the industry average P/E multiple is 9. What would be an estimate of the value of a share of the firms stock?(a) $54.00(b) $45.00(c) $1.50(d) $0.67Answer: (a)22. The value of the asset as it appears in the financial statement is called the assets _.(a) market value (b) fixed value(c) book value(d) expected valueAnswer: (c)23. Consider the following stock market reaction to the information contained in a companys announcement. A corporation has just announced that it must pursue the issuance of company equity. We could expect to see _ in the price of company stock.(a) a rise(b) a drop(c) a rapid rise(d) zero changeAnswer: (b)24. Consider what the stock market reaction to the following announcement would be. A corporation has just announced that it is engaging in a stock split of the companys shares. We could expect to see a _ in the overall market capitalization rate and a _ in the price of company stock.(a) rise; drop(b) drop; rise(c) rise; drop(d) rise; dropAnswer: (a)25. The _ is the proposition that an assets current price fully reflects all publicly available information about future economic fundamentals affecting the assets value.(a) public markets hypothesis(b) efficient markets exchange rates(c) fundamental value proposition(d) efficient markets hypothesisAnswer: (d)26. The market price of an asset reflects the _ of all analysts opinions with heavier weights on analysts who control large amounts of money and on those analysts who have better than average information.(a) best estimate(b) weighted average(c) highest estimate(d) lowest estimateAnswer: (b)27. Assume that the worldwide risk-free real rate of interest is 4% per year. Inflation in Denmark is 9% per year and in the United States it is 7% per year. Assuming there is no uncertainty about inflation, what are the implied nominal interest rates denominated in Danish krone and in U.S. dollars, respectively?(a) 16.63% (DKK); 13.50% (USD)(b) 13.50% (DKK); 16.63% (USD)(c) 13.36% (DKK); 11.28% (USD)(d) 11.28% (DKK); 13.36% (USD)Answer: (c)28. The _ theory states that the expected real interest rate on risk-free loans is the same all over the world.(a) nominal interest-rate parity(b) real interest-rate parity(c) efficient inflation rate parity(d) efficient market rateAnswer: (b)29. _ states that exchange rates adjust so as to maintain the same real price of a representative basket of goods and services around the world.(a) Purchasing power parity(b) Efficient markets hypothesis(c) Market valuation model(d) Exchange rate equityAnswer: (a)30. Assume that the worldwide risk-free real rate of interest is 5% per year. Inflation in Australia is 9% per year and in Great Britain it is 12% per year. Assuming there is no uncertainty about inflation, what are the implied nominal interest rates denominated in Australian dollars and Great Britain pounds, respectively? (a) 22.08% (AUD), 11.45% (GBP)(b) 11.45% (AUD), 22.08% (GBP)(c) 17.60% (AUD), 14.45% (GBP)(d) 14.45% (AUD), 17.60% (GBP)Answer: (d)Short Problems1. Suppose you have $20,000 in a bank account earning an interest rate of 4% per year. At the same time you have an unpaid balance on your credit card of $7,000 on which you are paying an interest rate of 18% per year. What is the arbitrage opportunity you face?Answer: You could take $7,000 out of your bank account and pay down your credit card balance. You would give up 4% per year in interest earnings ($280) but you would save 18% per year in interest expenses ($1,260). So the arbitrage opportunity is worth $980 per year.2. Fill in the missing exchange rates in the following table:U.S. DollarEuroDanish KroneJapanese YenU.S. Dollar$11.55760.20880.009594Euro0.6420Danish Krone4.7898Japanese Yen104.23Answer:U.S. DollarEuroDanish KroneJapanese YenU.S. Dollar$11.55760.20880.009594Euro0.64201 Euro0.13400.006159Danish Krone4.78987.460741 Krone0.45954Japanese Yen104.23162.3521.761Yen 13. You observe that the dollar price of the Mexican peso is $0.09618 and the dollar price of the Canadian dollar is $0.9997. What must the exchange rate between the Mexican peso and the Canadian dollar be for there to be no arbitrage opportunity?Answer:CAD/MXN = 0.09618 0.9997 = 0.096208 CAD/MXN4. Suppose that the exchange rate is $0.2970 to the Israeli shekel. How could you make arbitrage profits with $10,000 if the dollar price of gold is $200 per ounce and the shekel price is 750 ILS per ounce?Answer: Take $10,000 and buy 50 ounces of gold at $200 per ounce. Sell 50 ounces of gold in Israel for 37,500 ILS (750 ILS per ounce). Take 37,500 ILS and exchange it into dollars worth $11,137.50. The arbitrage profit is $1,137.50.5. You are travelling in FarOut where you can buy 150 kranes (a krane being the unit of currency in FarOut) with a U.S. dollar at official FarOut banks. Your tour guide has a relative who dabbles in the black market and this particular relative will sell you kranes for just $0.00685 each on the black market. How much would you gain or lose by exchanging $300 on the black market instead of going to the bank?Answer:On the official market: $300 x 150 kranes = 45,000 kranesOn the black market: $300 x 1/0.00685 kranes = 43,796 kranesHence, you would lose 1,204 kranes.6. A firms earnings per share are $5.50 and the industry average P/E multiple is 8. What would be an estimate of the value of a share of the firms stock? Is it possible for firms being classified in the same industry to have different price/earnings multiples?Answer:Estimated value share of stock= firms EPS x Industry average P/E= $5.50 x 8= $44.00Firms classified as being in the same industry may have different opportunities for growth in the future and may therefore differ in their P/E multiples.7. The P/E multiple of BHM Corporation is currently 5, while the P/E ratio of the S&P 500 is 10. What reasons could account for this difference?Answer:· BHMs reported earnings may be higher than they are expected to be in the future, or they may be inflated due to special accounting methods used by BHM.· BHM may be riskier than the S&P 500 either because it is in a relatively risky industry or has a relatively higher debt ratio.8. The price of Hubris Co. stock recently jumped when the CEO for the company announced an increased dividend payment for the year. What might account for such a market reaction?Answer: The market may believe the companys future prospects look very bright (that is, higher earnings, less risk, sound growth, etc.) and that the company can sustain such an earnings growth.9. Assume that the worldwide risk-free real rate of interest is 4% per year. Denmark has an expected rate of inflation of 9% per year and in Spain has an expected rate of inflation of 14% per year. Assuming there is no uncertainty about inflation, what are the implied nominal interest rates denominated in Kroner and Euros?Answer:Denmark: nominal interest rate = (1.04) x (1.09) 1= 13.36% per yearSpain: nominal interest rate = (1.04) x (1.14) 1 = 18.56% per year10. Assume that the worldwide risk-free real rate of interest is 4% per year. The United Kingdom has an expected rate of inflation of 8% per year and in Belgium it is 10% per year. Assuming there is no uncertainty about inflation, what are the implied nominal interest rates denominated in Pounds Sterling and Euros?Answer:United Kingdom: nominal interest rate = (1.04) x (1.08) 1 = 12.32% per yearBelgium: nominal interest rate= (1.04) x (1.10) 1 = 14.40% per yearLonger Problems1. Lets assume that you have operated your own business for 18 years. For the most recent fiscal year, sales were $15 million. Net Income for the most recent fiscal year was $1.5 million. The book value of your business was $11 million. Recently, a firm which is engaged in similar activities to your own was sold and the following information was made public:Multiple of Book Value0.8xMultiple of Net Income11xMultiple of Sales0.7xa) How would you determine an appropriate range of value for your company?b) It has come to your attention that your company has future investment opportunities that would be less profitable than the competing company above. What does this say about the valuation of your company? Answer: a)Multiple of Sales: 0.7x = $15 million x 0.7 = $10.5 millionMultiple of Net Income: 11x = $1.5 million x 11 = $16.5 millionMultiple of Book Value: 0.8x = $11 million x 0.8 = $8.8 millionb)The valuation of your company would be at the lower end of the range.2. BHM stock is trading for $47 per share on the NYSE and $45 per share on the Sydney Stock Exchange. Assume that the c