MS MS in Finance

Question 1

What does the Capital Asset Pricing Model (CAPM) primarily describe?

Accepted Answer

The relationship between systematic risk and expected return of an asset

Answer

CAPM states that the expected return of an asset equals the risk-free rate plus beta times the market risk premium, establishing a linear relationship between systematic risk and expected return.

Question 2

What is the 'time value of money' principle?

Accepted Answer

A dollar received today is worth more than a dollar received in the future

Answer

The time value of money holds that money available now is worth more than an identical sum in the future due to its earning potential through investment or interest.

Question 3

Which financial statement shows a company's revenues, expenses, and profits over a period?

Accepted Answer

Income statement

Answer

The income statement (profit and loss statement) summarizes a company's revenues, costs, and expenses during a specific reporting period, culminating in net income or loss.

Question 4

What does 'beta' measure in portfolio theory?

Accepted Answer

A stock's sensitivity to market-wide movements (systematic risk)

Answer

Beta measures how much a security's returns move relative to the overall market; a beta of 1.5 means the stock tends to move 1.5 times as much as the market.

Question 5

What is a 'derivative' in financial markets?

Accepted Answer

A financial contract whose value is derived from an underlying asset

Answer

A derivative is a financial instrument (such as options, futures, or swaps) whose value depends on the price of an underlying asset like stocks, commodities, or interest rates.

MS - Master of Science Practice Test

MS - Master of Science Practice Test

MS MS in Finance