ADM 1370 Lecture Notes - Lecture 4: Dependent And Independent Variables

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18 Apr 2016

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Logical tests: result of these functions is a logical value (true or false) ~ ex: comparison operators that can be used in logical tests are: Equals = ; less than < ; less than or equal to <= ; greater than > ; greater than or equal to >= ; not equal to < > Logical functions: result of these functions is a logical value (true or false) (cid:862)- and, - or, - not(cid:863) Allows you to test the condition of more than just 1 criterion (condition) Only returns true if all tested values are true. Returns a true value if any of logical conditions are true & a false value if all logical conditions are false. Used when you want to make sure a value is not equal to 1 particular value. Conditional functions: result may be a specified value or a calculated value. Countifs, sumifs, averageifs (to be used when multiple criteria are to be tested)

Related Questions

F2 Q1-5

The return on equity of a typical firm may change over time because of changes in business and economic conditions, but it is unlikely to change based on the financing or capital structure of the firm.

a. False.

b. True.

Your firm has been plodding along without much attention from the stock market. Your boss insists that he can (a) increase the return on assets to shareholders by taking on more debt, and (b) attract new investors to the firm due to the higher returns.

a. False.

b. Partly true, partly false.

c. True.

Even in a world with no frictions â that is, taxes, costs of bankruptcy, asymmetric information â debt will always be preferred because cost of debt is always lower than cost of equity for a firm.

a. True.

b. False.

c. Partly true, partly false.

In a world with taxes and bankruptcy costs, and in which interest on debt is tax deductible, if a firm has some debt:

a. The return on equity is less than the weighted average cost of capital (WACC).

b. The return on equity is greater than the weighted average cost of capital (WACC).

c. The relationship between return on equity and the WACC cannot be determined because it depends on several factors.

In the real world, where there are taxes and interest on debt is tax deductible, if two firms have the same cash flows as each other in all possible scenarios in the future, the returns on equity of the two firms will:

a. Will depend on the capital structures adopted by the firms.

b. Will depend on the capital structures adopted by the firms and the valuation method used.

c. Always be equal to each other.

d. Will depend on the method of valuation used.

The Capital Asset Pricing Model (CAPM) is one of the most extensively tested models in finance. The following statements describe the assumptions, methods, and findings of several fo these studies. Based on your understanding of these issues, which of the following statements are true? Check all that apply:

A) Many studies of the CAPM have used (1) daily or monthly historical returns of the stocks and (2) the rate on both the 30-day US Treasury bill and the long-term US Treasury bond to estimate the risk-free rate (rRF)

B) Given it's assumptions, the CAPM has greater value as a predictive model than as a conceptual framework for the evaluation of risks and returns

C) Two important hypotheses addressed in tests of the CAPM and SML are that (1) the intercept on the vertical axis should equal the risk-free rate (rRF) and (2) the required return on a stock or portfolio exhibiting a beta of 1.0 should equal the required market return (rM)

D) In an examination of whether the betas portfolios of 10 or more randomly selected stocks are stable over time, Levy (1971) found that the betas of these portfolios are relatively stable, so historical betas are good estimators of future portfolio volatility

E) In theory, the CAPM should be applied to only stocks and not to other types of financial assets

Select the answers above that apply.

The many tests of the CAPM have concluded that the model is extremely useful in using ex post data to calculate true ex ante required returns. Is this statement accurate? Yes or No.

QUESTION 1 The largest investors in corporate bonds are life insurance companies and pension funds. True False 5 points QUESTION 2 Most secondary market transactions for corporate bonds take place through dealers in the over-the-counter (OTC) market. True False 5 points QUESTION 3 The value (or price) of a bond is the present value of its expected future cash flows. True False 5 points QUESTION 4 Bond prices decline when the interest rate decreases. True False 5 points QUESTION 5 The face or par value for bonds is the amount paid to bondholders at maturity and is usually equal to $1,000. True False 5 points QUESTION 6 The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond. True False 5 points QUESTION 7 Zero coupon bonds have no coupon payments so they sell for more than their par value. True False 5 points QUESTION 8 Interest rate risk is the risk that bond prices will fluctuate when the interest rate changes. True False 5 points QUESTION 9 US Treasury securities are considered risky investments because the coupon payments are unpredictable. True False 5 points QUESTION 10 Bonds are very difficult to value because their future cash flows are very difficult to predict. True False 5 points QUESTION 11 If the bond's coupon rate is equal to the market rate then the bond will sell at a price equal to its face value greater than its face value less than its face value equal to its foreign currency value, e.g., its price in British pounds 5 points QUESTION 12 When calculating the price of a bond that pays a semiannual coupon one needs to use double the number of years until maturity for the number of payments use half the annual coupon payment use half the annual rate of return as the discount rate all of the above 5 points QUESTION 13 The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments more than the price of the bond equal to zero equal to the price of the bond less than the price of the bond 5 points QUESTION 14 Which one of the following statements is true? All else equal long-term bonds have lower price volatility than short-term bonds. There is an inverse relation between bond prices and market interest rates. All else equal short-term bonds are more risky than long-term bonds. All else equal US government bonds are more risky than corporate bonds. 5 points QUESTION 15 An investor owns a 10-year US government bond with a 9 percent coupon rate. If the yield-to-maturity on the bond is 8 percent then this bond is selling for its par value. a discount. a premium. its face value. 5 points QUESTION 16 BA Corp is issuing a 10-year bond with a coupon rate of 8 percent and a par value of $1,000. The market interest rate on similar bonds is currently 6 percent. If the coupon payments are made annually, what is the value of this bond? 5 points QUESTION 17 Knight, Inc. has issued a 3-year bond with a $1,000 par value and an annual coupon rate of 6 percent. The current market rate of interest is 5 percent. What is the value of this bond if the coupon payments are made semiannually? 5 points QUESTION 18 Diane Carter is interested in buying a 5-year zero coupon bond with a face value of $5,000. If the market interest rate on these types of bonds is currently 9 percent, what is the current price of this bond? 5 points QUESTION 19 Rudy Sandberg wants to invest in 4-year bonds that are currently priced at $933.76. The bonds have a coupon rate of 6 percent and annual coupon payments. If the par value of the bonds is $1,000, what is the bond's yield-to-maturity? 5 points QUESTION 20 You own a 5-year bond with a face value of $1,000 and a coupon rate of 5 percent with annual payments. The bond is currently worth $810.46. If market interest rates remain unchanged, what will be the value of the bond next year when there are 4 years left until maturity?

ADM 1370 Lecture Notes - Lecture 4: Dependent And Independent Variables

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