Questions:
What is operating leverage and how does it influence a project?
What are the two methods for estimating debit cost of capital, and what do you do when there is default risk? Explain the circumstances in which you would use each method.
In what instances would an investor want to "beat the market" and "hold the market"? Discuss the strategies for each and their dependence on an investor's information and trading skills.
In what ways do uninformed investors trade too much? Discuss how uninformed investors use the CAPM and how their behaviors deviate.
Essays:
Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.
Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.
What additional assumptions (to the main three) are important when applying the Capital Asset Pricing Model and what are the underlying strengths and weaknesses of this application? Discuss the reliability of the model and give examples in your explanation.
Discuss the Arbitrage Pricing Theory and the Fama-French factor and the "preciseness" of techniques used to calculate cost of capital. How does one decide on which technique is best to use?