Question

1.Match the synonyms.

-leverage     

-cost of capital

-expected return

-intrinsic value

-No Arbitrage  

-arbitrage profit  

-NPV of future investments

synonym bank: required return            debt            fundamental value            free lunch            growth options            expected holding period return (HPR)            Law of One Price      

2.The difference between the expected return and the cost of capital for a stock is called (one word)

3.A stock with a negative alpha is ?

4.A firm has 5 million shares outstanding, trading at $20 per share, and $30 million in debt. The market capitalization is:

5.The market value of a company is always equal to the market value of the assets in place.(T/F)

6.A market in which stock prices reflect all available information is called a(n)_________ capital market.

7.we learn several equivalent statements that describe a well-functioning capital market:

a. The current market price of any security is equal to the (two words) _______ ________ .

b. The alpha of any security is (one word or number) _________ .

c. The NPV of investing on the capital market is (one word or number)__________ .

d. The expected return on any security is equal to the (three words at most)______ ______ _______ .

Answer 1

1.

-leverage debt   

-cost of capital required return

-expected return expected holding period return (HPR)

-intrinsic value fundamental value

-No Arbitrage Law of One Price

-arbitrage profit free lunch

-NPV of future investments growth options

2.The difference between the expected return and the cost of capital for a stock is called alpha

3.A stock with a negative alpha is No Arbitrage

4.A firm has 5 million shares outstanding, trading at $20 per share, and $30 million in debt. The market capitalization is 100 million

5.The market value of a company is always equal to the market value of the assets in place.F

6.A market in which stock prices reflect all available information is called a perfect capital market.

7.we learn several equivalent statements that describe a well-functioning capital market:

a. The current market price of any security is equal to the (two words) fundamental/intrinsic value

b. The alpha of any security is (one word or number) zero

c. The NPV of investing on the capital market is (one word or number) zero

d. The expected return on any security is equal to the (three words at most) cost of capital