QUESTION: 177

Which of the following assumption is a base for the process of unlevering and relevering betas to an assumed capital structure?

Business interest subject to valuation has the ability to change the capital structure of the subject company
Investors are risk averse
Subject companies are at market value in this process
The amount of debt and equity at market value.

Answer(s): A

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QUESTION: 178

The assumptions underlying the capital asset pricing model are as follows:

Investors are risk averse
Rational investors seek to hold efficient portfolios-that is, portfolios that are fully diversified
All investors have identical investment time horizons (i.e., expected holding periods)
The rate received from lending money is more than the cost of borrowing money

Answer(s): D

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A series of small stock premium studies have been developed by Roger Grabowski and David King. They use eight different measures of size for two major groups (Equity size and Company size). Which of the following is/are measure/s of company size?

Market value of common equity
Book value of common equity
Market value of invested capital
Number of employees

Answer(s): C,D

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QUESTION: 180

The Build-Up model divides the risk premium into its subcomponents and estimates the cost of capital as the sum of the following:
1.A risk-free
2.A risk premium, including one or all of following subcomponents EXCEPT:

An equity risk premium
A size premium
A company-specific risk premium
Investment-specific risk

Answer(s): D

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QUESTION: 177

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QUESTION: 180