Typische Fragen

Financial Markets and Capital Market Theory
Sample Question #1

  1. A consumer with utility function 𝑈(𝑐0, 𝑐1) = ln(𝑐0) + 1.2 ln (𝑐1) is confronted with endowments 𝐸0 = 500 and 𝐸1 = 550. Calculate the optimal consumption in both periods using the Lagrangian approach if the market rate of interest is 8%.

  2. Now assume the economy consists of only two consumers; the consumer from above (consumer #1) and consumer #2 with utility function 𝑈#2(𝑐0, 𝑐1) = ln(𝑐0) + 1.05 ln (𝑐1) and respective endowment position 𝐸0 = 300 and 𝐸1 = 400. (i) Describe the equilibrium in the capital market of this economy. What are the conditions for equilibrium? (ii) Calculate the equilibrium market rate which clears the capital market.

Sample Question #2

  1. Explain on the basis of an appropriate diagram the Tobin separation.

  2. In a capital market the risk-free rate is rf = 0.03 and the parameters for the market portfolio are 𝜇𝑚=0.08 and 𝜎𝑚=0.2. Calculate the firm’s standard deviation of the rate of return if the firm i has the same systematic risk as the market and standard deviation of the firm specific risk is 𝜎𝜖=0.369. Sketch the result a graph in relation to the capital market line (CML) and give a clear interpretation!

  3. Depict in a 𝜇−𝜎 diagram the efficient portfolios consisting of the following two assets which are assumed to be perfectly positively correlated.

     

    Asset #1

    Asset #2

    𝜇

    10%

    10%

    𝜎

    25%

    45%

Principles of Corporate Finance
Sample Question #1

Show that in the Modigliani-Miller (MM) framework, the weighted average cost of capital is a constant. Point out at which steps of the reasoning you need to make use of the value invariance result and the assumption of risk classes.

Sample Question #2

Assume company ABC’s stock has a market value of 8 with corresponding equity costs of 18%. ABC has also riskless debt outstanding with market value of 4 and debt costs of 6%. The firm has a project which is expected to yield 17%, but which is 40% more risky than existing assets. Assume that the CAPM holds. Is the project profitable? Explain your answer.

Sample Question #2

Explain the Miller (1977) equilibrium. Point out the relevance of taxes on the personal level. Explain the significance of the result for the optimal leverage choice.

Principles of Behavioral Finance
Sample Question #1

  1. What are the key aspects of cumulative Prospect Theory?

  2. In the Prospect Theory framework there is a distinction between the integration and the segregation of decisions. Explain the difference between the break even effect and the house money effect.

Sample Question #2

Is the following statement true or false?

  1. The favorite-longshot bias (or longshot-favorite bias) states that people bet too much on favorites.

  2. For short-term intervals (3-12 months) there is usually momentum.

  3. According to the status-quo bias people are less willing to leave the status-quo because of loss aversion.


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