Afm231 Suggest Answer

SUGGESTED ANSWERS FOR AFM231 EXAM TP 01 2012

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SECTION A: MULTIPLE CHOICE QUESTIONS Answer ALL 20 questions in Section A. Select the choice that is most appropriate and CIRCLE on the MULTIPLE CHOICE ANSWER SHEET. Answers not shown on Multiple Choice Answer Sheet, will not be marked. Each question carries 3 marks. (20 Questions X 3 marks each = Total MCQ Marks 60) Question 1: Spreading an investment across many assets will minimise: A). systematic risk B). market risk C). unsystematic risk D). both systematic risk and market risk Question 2: Risk that affects a large number of assets, each to a greater or lesser degree, is called: A). non-systematic risk B). systematic risk C). micro risk D). total risk Question 3: The ________ explains the expected return for all assets. A). security market line equation B). expected returns equation C). capital market line equation D). market model Question 4: A contract that gives its owner the right to buy or sell some asset at a fixed price on or before a given date is called a(n): A). future contract B). swap contract C). forward contract D). option contract Question 5:

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The value of the call option depends on: A). share price, exercise price, strike price, risk-free rate and time to expiration B). share price, exercise price, risk-free rate and time to expiration C). share price, strike price, standard deviation, risk-free rate and time to expiration D). share price, exercise price, strike price, standard deviation and time to expiration Question 6: All else equal, a put option's price will __________ if the current value of the underlying asset increases: A). increase B). decrease C). not change D). none of the given answers Question 7: The length of time required for an investment's discounted cash flows to equal its initial cost is known as: A). payback method B). internal rate of return C). pre-specified number of years method D). discounted payback method Question 8: In the NPV profile: A). different NPVs...