Subject: FIN404m

Number of question: 300

QN= 61 Which of the following statements correspond(s) to a flattening of a “normal” yield curve?

a. Short term rates increase more than long term rates.

b. Short term rates decrease more than long term rates.

c. Short term rates increase less than long term rates.

d. Short term rates move the same speed as long term rates.

e.

f.

ANSWER: A

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QN= 62 Suppose the yield curve is upward sloping. Then, short term rates decrease and long term rates increase. Which of the
following statements is/are true?

a. The yield curve is now downward sloping.

b. The yield curve has flattened.

c. The yield curve has steepened.

d. The slope of the yield curve has decreased

e.

f.

ANSWER: C

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QN= 63 What is the assumption we usually make when forecasting future cash flows beyond the explicit forecast horizon?

a. Cash flows beyond the explicit forecast horizon will forever grow at an exponentially increasing rate.

b. Cash flows beyond the explicit forecast horizon will forever grow at a constant rate.

c. Cash flows beyond the explicit forecast horizon will forever remain at the same level.

d. The firm will be liquidated.

e.

f.

ANSWER: B

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QN= 64 We are currently at the end of year "t". You performed a thorough financial analysis of XYZ and forecast the following Free
Cash Flows (FCF):

● Year t+1: 352 million USD

● Year t+2: 385 million USD
 ● Year t+3: 407 million USD

From year t+3 onward, you expect the FCFs to grow at a constant yearly rate of 4%.

Through your analysis, you also determined that the appropriate Weighted Average Cost of Capital (WACC) for XYZ was
11%.

Finally, you know that XYZ has 1000 million USD in debt and 100 million shares outstanding. What is the terminal value (in
Year t+3)?

a. 6000

b. 7000

c. 6047

d. 6500

e.

f.

ANSWER: C

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QN= 65 We are currently at the end of year "t". You performed a thorough financial analysis of XYZ and forecast the following Free
Cash Flows (FCF):

● Year t+1: 352 million USD

● Year t+2: 385 million USD
● Year t+3: 407 million USD

From year t+3 onward, you expect the FCFs to grow at a constant yearly rate of 4%.

Through your analysis, you also determined that the appropriate Weighted Average Cost of Capital (WACC) for XYZ was
11%.

Finally, you know that XYZ has 1000 million USD in debt and 100 million shares outstanding. Suppose the correct Terminal
Value is 6000 million USD (i.e. discard your answer to the previous question), what is the price of 1 share of XYZ using
the Discounted Cash Flow (DCF) valuation method?

a. 40

b. 41

c. 42

d. 43

e.

f.

ANSWER: D

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QN= 66 Suppose you observe that a share of XYZ is traded at a price of 35 USD on an exchange. Based on your own estimate of the
price of a share of XYZ is 43 USD, you say that the company is______.

a. undervalued by the market

b. overvalued by the market

c. undervalued and overvalued by the market

d. None of these statements are correct

e.

f.

ANSWER: A

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QN= 67 The Net Present Value of a project is 8 USD. What would you say about this project?

a. It is a project worth pursuing because its Net Present Value (NPV) is positive.

b. It is not a project worth pursuing because its Net Present Value is negative.

c. It is a project worth pursuing because its Net Present Value is negative.

d. It is not a project worth pursuing because its Net Present Value is positive.

e.

f.

ANSWER: A

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QN= 68 Suppose you have found a lower value for the price of a share of a company using the multiples-based method than the DCF
method.Which of the following possible estimation errors could explain the discrepancy between the share prices you found
using the DCF and multiples-based valuation methods?

a. You underestimated the Weighted Average Cost of Capital (WACC).

b. You overestimated the Weighted Average Cost of Capital (WACC).

c. You underestimated the Free Cash Flow (FCF) in Year t+3.

d.
You underestimated the constant yearly growth rate of Free Cash Flows (FCFs) from Year t+3 onward.

e.

f.

ANSWER: A

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QN= 69 Which of the following are not characteristics belong to government bonds?

a. They are generally issued in domestic currency

b. They are backed by the full faith of the government

c. They are issued to a small group of lenders

d. They are issued to support government spending

e.

f.

ANSWER: C

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QN= 70 What was the annualized return of Nokia’s stock price between the beginning of 1991 (suppose the stock price was 0.16 € at
that time) and the end of 1998 (suppose the stock price was 14 € at that time)?

a. 50

b. 60

c. 75

d. 85

e.

f.

ANSWER: C

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