Question I: Briefly describe the principles that form the foundation of finance.
Question II: What are some of the problems involved in implementing the goal of maximization of shareholder wealth?
Question III: What is meant by the investor´s required rate of return, and what are the two components of the investor´s rate of return?
Question IV: What is the relationship between financial decision making and risk and return? Would all financial managers view risk-return trade-offs similarly?
Question V: Given the following probabilities and returns for Exacta Corporation, find the standard deviation.
Probability Return
0.35 8%
0.30 5%
0.10 17%
0.25 9%
Question VI: Magix, Airlux and GeoMorph have betas of 0.964, 0.793, and 0.675, respectively.
Assume the expected return for the general market is 12.4 % and the risk premium in the market is 9 %. What are the corresponding rates of return for the three securities?