Question

1. Which of the following is a function of the investment banker in a M&A process? [I] identifying potential target firms [II] arranging mergers [III] developing defensive tactics [IV] establishing a fair value of the target firm [V] arranging financing of the merger.

   		I, II, III
   		II, III, IV
   		III, IV, V
   		All of the above

1. Which of the following is a type of systematic risk, and how would such a risk impact the beta of a firm involved in a merger? [I] labor strikes in the company [II] currency crisis [III] Bad product decision by the firm's management [IV] A rise in the delinquency rates and home foreclosures in the financial system.

   		I, II; Negative effect on beta
   		II, III; Negative effect on beta
   		III, IV; Positive effect on beta
   		II, IV; Positive effect on beta
   		I, III; Positive effect on beta
   		None of the above answer combinations are correct

Answer 1

Investment bank is involved in a range of functions lik M&A, fund arrangement, identification and valuation of target firm, defensive tactics etc.

Answer is All of the above

Beta or systematic risk is the volatility in stock portfolio, such that a 1 unit increase or decrease in market portfolio gives Beta units of corresponding increase or decrease in stock returns. Options I and III are firm specific risks and not a systemic risk posed by the market whereas Options II and IV represent a market wide systemic risk and as the market risks increase the stock also would be positively correlated with the risks. As the systemic risks like currency crisis and delinquency rates increase, the market portfolio falls and as a result Beta also falls. So II and IV will have a negative effect on Beta

Answer is : None of the above answer combinations are correct