Financial Management

✅ The correct answer is D.
In order to determine the expected return of a portfolio, all of the following must be known except all of the above must be known in order to determine the expected return of a portfolio. The expected return for an investment portfolio is the weighted average of the expected return of each of its components.

✅ The correct answer is A.

✅ The correct answer is D.
A premium charged by lenders for securities that cannot be converted into cash is classified as liquidity premium and marketability premium.

✅ The correct answer is B.
Current Market Risk Premium = Future return on common stock – T-Bond
= 14% – 5% = 9%.

✅ The correct answer is A.
Type of financial securities that matures in less than a year are classified as money market securities. There are several money market instruments in most Western countries, including treasury bills, commercial paper, bankers’ acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securities.

✅ The correct answer is D.
If default probability is zero and bond is not called then yield to maturity is equal to expected return rate. The return on an investment as estimated by an asset pricing model. It is calculated by taking the average of the probability distribution of all possible returns.

✅ The correct answer is C.
Corner portfolios are portfolios calculated where a security either enters or leave the portfolio.

✅ The correct answer is B.
Sustainable growth rate represents the rate at which a company can grow from internal sources. The sustainable growth rate (SGR) is the maximum rate of growth that a company can sustain without having to finance growth with additional equity or debt.

✅ The correct answer is C.
The optimal portfolio is the efficient portfolio with the highest utility. Portfolio optimization is the process of selecting the best portfolio, out of the set of all portfolios being considered, according to some objective.

✅ The correct answer is B.
Future value of interest if it is calculated once a year is classified as annual compounding. Future value is the value of an asset at a specific date. It measures the nominal future sum of money that a given sum of money is “worth” at a specified time in the future assuming a certain interest rate, or more generally, rate of return; it is the present value multiplied by the accumulation function.