CARDIFF SCHOOL OF MANAGEMENT

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Module Title: Contemporary Finance

Module Number: BAC6030

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Examination Period: May 2023

Examination Duration: 2 hours

The submission portal will open at 09:00 (UK time) on the date of the
examination and will remain open for 48 hours.
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INSTRUCTIONS TO CANDIDATES:

1. This is an open book examination.

2. Non-programmable calculators are allowed.

3. Answer all three questions in this paper.

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QUESTION 1

a) Critically examine the following key elements of the Capital Asset Pricing Model
(CAPM):

i) Risk free rate

ii) Risk Premium
iii) Beta
(9 marks)

b) Discuss the assumptions of the Capital Asset Pricing Model and how these
assumptions relate to the “real world” investment decision process.
(24 marks)

Total: 33 marks

QUESTION 2

a) Critically evaluate and distinguish between Expected Utility theory, Prospect theory
and Regret theory.
(15 marks)

b) From a behavioural finance perspective, critically evaluate what role the ‘Winner’s
Curse’ plays in takeovers and initial public offerings of shares. Can theories of
behavioural finance shed light on the likelihood of whether the government got a
bad deal in the IPO of Royal Mail?
(18 marks)

Total: 33 marks

(QUESTIONS CONTINUE ON NEXT PAGE)

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QUESTION 3

a) Compare and contrast the efficient market hypothesis with behavioural finance.
(10 marks)

b) With the aid of examples, define and explain the following psychological biases and
their impact on investors and financial markets:

i) Overconfidence
(6 marks)
ii) Mental accounting
(6 marks)
iii) Herding
(6 marks)
iv) Illusion of Control
(6 marks)

Total: 34 marks

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