1. Describe an example where a bank could control their risk exposure to a counterparty or asset class using Securitized instruments such as CDS or MBS.
2. What function does the CAPM fulfill? What is the role of Beta? Explain the role that Beta plays in determining the return on a stock? If the market is up 10 percent and the Beta of the stock is 2, what is suggested regarding the expected return on that stock? What if the market is down 10 percent; what then is the expected return on that stock?
3. NOPAT and FCF are likely of limited use in a vacuum (i.e., one year). Accordingly, explain why ROIC, MVA, and EVA—and the historical trends thereof—are important performance metrics in a financial analysis exercise.