Capital Management and Financial Decisions Flashcards

1
Q

The Security Market Line (SML)

A

graphs the relationship between expected return and risk as measured by the beta coefficient

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

equation for the SML

A

capital asset pricing model (CAPM)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

beta coefficient

A

measures systematic risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When two investments have the same expected return

A

the project with the lower standard deviation is preferred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

when projects have different expected returns

A

the project with the lower coefficient of variation is preferred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Limitations of IRR vs NRV

A

1) IRR assumes reinvestment of each cash flow at the IRR

2) NPV assumes reinvestment at the cost of capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Modified Internal Rate of Return (MIRR) improves upon the Internal Rate of Return (IRR) technique by

A

allowing the reinvestment rate assumption to be modified by the user

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Perpetuity

A

pays cash flows Forever

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

consol

A

is a perpetual bond issued by the British government.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

An annuity and annuity due

A

are equal cash flows over a specified period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly