CGA CGA Corporate Finance & Capital Markets 2

Question 1

What does the term 'systematic risk' refer to in portfolio theory?

Accepted Answer

Risk inherent to the entire market that cannot be diversified away

Answer

Risk that can be eliminated through diversification

Answer

Risk specific to one company

Answer

Risk arising from poor management decisions

Question 2

A company's beta is 1.4. If the market return is 10% and the risk-free rate is 3%, what is the required return using CAPM?

Accepted Answer

12.8%

Answer

10.0%

Answer

13.4%

Answer

17.0%

Question 3

Which of the following is an example of an unsecured short-term debt instrument issued by corporations?

Accepted Answer

Commercial paper

Answer

Treasury bill

Answer

Mortgage bond

Answer

Debenture

Question 4

What is the primary purpose of a sinking fund provision in a bond indenture?

Accepted Answer

To allow the issuer to repurchase bonds gradually before maturity

Answer

To increase the coupon rate over time

Answer

To protect against inflation

Answer

To convert bonds to equity

Question 5

Which valuation model values a stock based on the present value of expected future dividends growing at a constant rate?

Accepted Answer

Gordon Growth Model

Answer

Price/Earnings model

Answer

Discounted Cash Flow model

Answer

Capital Asset Pricing Model

Question 6

A rights offering allows existing shareholders to:

Accepted Answer

Purchase new shares at a discount before the public

Answer

Sell shares back to the company at par value

Answer

Convert bonds to equity at their discretion

Answer

Receive dividends in additional shares