Part I: True or false (no explanation required) 1. If the current yield on a bon

Question

Part I: True or false (no explanation required)

1.If the current yield on a bond is higher than the coupon rate then its price is less than its par value.

2.A US equity mutual fund that last year had a = 0 underperformed over that period.

3.A US bond mutual fund that last year had a Sharpe ratio = 0 underperformed over that period.

If we sell a fully depreciated asset for $10,000 and our tax rate is 30%, the resulting after-tax cash flow is $7,000.

5.The average EBITDA multiple for real estate is higher than for computer software.

A firm will increase its market value only if its EVA > WACC.

7.On November 7, 2013, the Twitter IPO ended the day at $44.90. In determining the proper price for a Twitter share a reasonable approach would be to use a net income multiple.

8.Portfolio C is composed of equal investment in (normally distributed) assets A and B. The b of C is the average of the betas of assets A and B.

9.Portfolio C is composed of equal investment in (normally distributed) assets A and B. The Sharpe ratio of C is the average of the Sharpe ratios of assets A and B.

10. As the maturity date for a zero coupon bond approaches, its price normally rises.

Explanation / Answer

1. If the current yield on a bond is higher than the coupon rate then its price is less than its par value. - True
2. A US equity mutual fund that last year had a = 0 underperformed over that period - True
3. A US bond mutual fund that last year had a Sharpe ratio = 0 underperformed over that period = False
4. If we sell a fully depreciated asset for $10,000 and our tax rate is 30%, the resulting after-tax cash flow is $7,000 = False
5. The average EBITDA multiple for real estate is higher than for computer software = True
6. A firm will increase its market value only if its EVA > WACC = False
7.On November 7, 2013, the Twitter IPO ended the day at $44.90. In determining the proper price for a Twitter share a reasonable approach would be to use a net income multiple = True
8.Portfolio C is composed of equal investment in (normally distributed) assets A and B. The b of C is the average of the betas of assets A and B = True
9.Portfolio C is composed of equal investment in (normally distributed) assets A and B. The Sharpe ratio of C is the average of the Sharpe ratios of assets A and B = False
10. As the maturity date for a zero coupon bond approaches, its price normally rises = True

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