Financial Management - Study Mode
[#976] Positive minimum risk portfolio of any security shows that market security sold
Correct Answer
(D) greater than original price
Explanation
Solution: Positive minimum risk portfolio of any security shows that market security sold greater than original price. A minimum variance portfolio indicates a well-diversified portfolio that consists of individually risky assets, which are hedged when traded together, resulting in the lowest possible risk for the rate of expected return.
[#977] Third factor in Fama French three factor model is ratio which is classified as
Correct Answer
(B) market to book ratio
Explanation
Solution: Third factor in Fama French three factor model is ratio which is classified as market to book ratio. The Fama and French model has three factors: size of firms, book-to-market values and excess return on the market. In other words, the three factors used are SMB (small minus big), HML (high minus low) and the portfolio's return less the risk free rate of return.
[#978] In capital asset pricing model, assumptions must be followed including
Correct Answer
(D) all of above
Explanation
Solution: In capital asset pricing model, assumptions must be followed including no taxes, no transaction costs and fixed quantities of assets.
[#979] Two alternative expected returns are compared with help of
Correct Answer
(A) coefficient of variation
Explanation
Solution: Two alternative expected returns are compared with help of coefficient of variation. The coefficient of variation (CV) is a statistical measure of the dispersion of data points in a data series around the mean.
[#980] Which of the following is not a feature of an optimal capital structure?
Correct Answer
(C) Control
Explanation
Solution: An optimal capital structure is the best combination of debt and equity financing that maximizes a company's market value and minimizes its overall cost of capital . Safety is a feature because a sound capital structure ensures the company can meet its obligations and reduces the risk of financial distress. Flexibility is important as it allows the firm to adapt its financing strategy in response to changing market conditions or business needs. Solvency is essential because a company must be able to meet its long-term financial commitments to remain financially healthy. Control , however, is not a defining feature of an optimal capital structure. While management may prefer to retain control, the primary objective is value maximization , even if it results in some dilution of control. Hence, the correct answer is Option C: Control .