DBA Corporate Finance and Financial Management 3

Question 1

What is the 'efficient market hypothesis' (EMH) in its strong form?

Accepted Answer

Stock prices reflect all information, including private (insider) information

Answer

The strong form of EMH asserts that stock prices fully reflect all information — public and private — making it impossible to consistently outperform the market even with insider knowledge.

Question 2

Which risk management technique involves transferring risk to another party through an insurance contract or financial instrument?

Accepted Answer

Risk transfer

Answer

Risk transfer shifts the financial consequences of a risk to another party — commonly through insurance, derivatives (hedging), or contractual agreements.

Question 3

In financial analysis, what does a high Price-to-Earnings (P/E) ratio typically indicate?

Accepted Answer

Investors expect high future earnings growth relative to current earnings

Answer

A high P/E ratio generally means investors are willing to pay a premium for expected future earnings growth, often seen in growth-oriented companies.

Question 4

What is 'beta' in the Capital Asset Pricing Model (CAPM)?

Accepted Answer

A measure of a security's volatility relative to the overall market

Answer

Beta measures the sensitivity of a stock's returns to market returns; a beta of 1 means the stock moves with the market, above 1 indicates higher volatility.

Question 5

What is the primary goal of 'transfer pricing' policies in multinational corporations operating in the US?

Accepted Answer

Determining the prices at which transactions occur between related entities within the same corporate group

Answer

Transfer pricing establishes the prices for intercompany transactions (goods, services, intellectual property) within a multinational, affecting profit allocation and tax obligations across jurisdictions.

DBA - Doctor of Business Administration Practice Test

DBA - Doctor of Business Administration Practice Test

DBA Corporate Finance and Financial Management 3