Financial Management

✅ The correct answer is A.
In corporation characteristics, an easy transferring and division of stock of shares is classified as ownership interest transferability.

✅ The correct answer is D.
A measure which is not included in Fama French Three-Factor model is risk premium. The Fama-French three-factor model is an expansion of the capital asset pricing model (CAPM) CAPM formula shows the return of a security is equal to the risk-free return plus a risk premium, based on the beta of that security. The model is adjusted for outperformance tendencies.

✅ The correct answer is A.
The value of a derivative security depends on the value of the related primitive security. A derivative security is a financial instrument whose value depends upon the value of another asset. The main types of derivatives are futures, forwards, options, and swaps.

✅ The correct answer is A.
An additional desired compensation by investors for assuming an additional risk on investment is classified as risk premium. A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield; an asset’s risk premium is a form of compensation for investors who tolerate the extra risk, compared to that of a risk-free asset, in a given investment.

✅ The correct answer is D.
Preferred dividend is divided by preferred stock price multiply by (1-floatation cost) is used to calculate component cost of preferred stock. Cost of preferred stock is the rate of return required by holders of a company’s preferred stock. It is calculated by dividing the annual preferred dividend payment by the preferred stock’s current market price.

✅ The correct answer is B.
The price to book value ratio tends to be close for banks. Price-to-book value (P/B) is the ratio of market value of a company’s shares (share price) over its book value of equity. The book value of equity, in turn, is the value of a company’s assets expressed on the balance sheet.

✅ The correct answer is A.
Default free financial security sells by U.S treasury is classified as U.S treasury bills. A Treasury Bill (T-Bill) is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of one year or less.

✅ The correct answer is A.
An average inflation rate which is expected over life of security is classified as inflation premium. An inflation premium is the part of prevailing interest rates that results from lenders compensating for expected inflation by pushing nominal interest rates to higher levels. Key points : Investors seek this premium to compensate for the erosion in the value of their capital due to inflation.

✅ The correct answer is D.
If net present value is positive then profitability index will be greater than one. A positive net present value indicates that the projected earnings generated by a project or investment – in present dollars – exceeds the anticipated costs, also in present dollars. It is assumed that an investment with a positive NPV will be profitable, and an investment with a negative NPV will result in a net loss.

✅ The correct answer is C.
A formula such as an original investment plus an expected capital gain is used to calculate expected final stock price.