The Arbitrage Pricing Theory (APT) assumes investors can sell short. This involves:
Answer(s): B
Short selling refers to selling a security that the investor does not currently own, with the intention of buying it back later at a lower price to profit from the decline in value. The Arbitrage Pricing Theory (APT) assumes that investors can take both long and short positions to exploit pricing inefficiencies. This is fundamental for arbitrage opportunities under APT.
If a company's Economic Value Added is negative, this means that:
Economic Value Added (EVA) is a measure of a company's financial performance based on residual wealth, calculated by deducting the cost of capital from its net operating profit after taxes (NOPAT). A negative EVA indicates that the company is not generating returns above its cost of capital, meaning it is destroying shareholder value rather than creating it.
Which of the following would cause a coffee producer's supply curve to shift to the right?
Answer(s): A
Improved harvesting methods increase production efficiency and reduce costs, enabling the coffee producer to supply more at each price level. This causes the supply curve to shift to the right, reflecting an increase in supply.
Which term is used to describe a dividend payment made by a company with insufficient earnings to do so?
Answer(s): D
An uncovered dividend payment occurs when a company pays dividends despite having insufficient earnings to cover the payment. This typically indicates that the dividend is being paid from reserves or through borrowing, which may raise concerns about the company's financial sustainability.
The return on a whole-of-life unit-linked policy is:
A whole-of-life unit-linked policy is an insurance product where the value of the policy is directly tied to the performance of investment funds chosen by the policyholder. Therefore, the return is directly related to the performance of the insurance company's fund in which the premiums are invested.
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