Financial Management - Study Mode

[#1146] An indication in a way that variance of y-variable is explained by x-variable which is shown as
Correct Answer

(A) degree of dispersion is one

Explanation

Solution: An indication in a way that variance of y-variable is explained by x-variable which is shown as degree of dispersion is one. The measure of dispersion helps us to study the variability of the items. In a statistical sense, dispersion has two meanings: first it measures the variation of the items among themselves, and second, it measures the variation around the average.

[#1147] In regression of capital asset pricing model, an intercept of excess returns is classified as
Correct Answer

(C) Jensen's alpha

Explanation

Solution: In regression of capital asset pricing model, an intercept of excess returns is classified as Jensen's alpha. Jensen's Alpha, also known as the Jensen's Performance Index, is a measure of the excess returns earned by the portfolio compared to returns suggested by the CAPM model. It represents by the symbol α. The value of the excess return may be positive, negative, or zero.

[#1148] In arbitrage pricing theory, required returns are functioned of two factors which have
Correct Answer

(D) Both A and B

Explanation

Solution: In arbitrage pricing theory, required returns are functioned of two factors which have dividend policy and market risk. Arbitrage pricing theory (APT) is a multi-factor asset pricing model based on the idea that an asset's returns can be predicted using the linear relationship between the asset’s expected return and a number of macroeconomic variables that capture systematic risk.

[#1149] If NAV > market price of a fund, then the fund ________
Correct Answer

(A) is selling at a discount

Explanation

Solution: If the fund is traded at a price lower than the NAV, it is called “discount”. Similarly if the fund is traded at a price higher than the NAV it is called “premium”.

[#1150] The objective of financial management is to ______________.
Correct Answer

(C) generate the maximum wealth for its shareholders

Explanation

Solution: The objective of financial management is to generate the maximum wealth for its shareholders. Financial Management is the application of general principles of management to the financial possessions of an enterprise. Proper management of an organization's finance provides quality fuel and regular service to ensure efficient functioning.