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Corporate Finance · Quiz 2 · Sep 2025

Questions and published explanations below are available without starting a test. Some questions may not have a published solution yet.

Question 220 NAT · 2.0 marks

Given that the pen drawn is green, find the probability that it came from box C. Enter the answer correct to two decimal places.

A published solution is not available for this question yet.

Question 222 MCQ · 4.0 marks

According to the Expected Utility Hypothesis, if there are two possible states, 1 and 2, with probabilities [[IMAGE:192f0f7c576e8804_2_0]] and [[IMAGE:192f0f7c576e8804_2_1]] , and respective state-contingent consumptions are [[IMAGE:192f0f7c576e8804_2_2]] and [[IMAGE:192f0f7c576e8804_2_3]] , then the utility function is given by:

[[IMAGE:192f0f7c576e8804_2_4]]
[[IMAGE:192f0f7c576e8804_2_5]]
[[IMAGE:192f0f7c576e8804_2_6]]
[[IMAGE:192f0f7c576e8804_2_7]]

A published solution is not available for this question yet.

Question 223 MCQ · 4.0 marks

Global Bank has total assets of 2,500 units, liabilities of 1,500 units, and capital of 1,000 units. What is the leverage ratio for Global Bank?

0.4
0.6
1.67
2.5

A published solution is not available for this question yet.

Question 224 MCQ · 4.0 marks

On a Mean-Standard Deviation diagram (Mean on the vertical axis and Standard deviation on horizontal axis) the left boundary of the feasible set represents the:

Efficient Frontier
Global Minimum Variance (GMV) portfolio
Capital Allocation Line (CAL)
Minimum-Variance Set

A published solution is not available for this question yet.

Question 225 MCQ · 4.0 marks

A 1-year government bond offers a 5% rate of return. A lender, who is risk neutral, lends ₹50,000 to a friend. The lender believes the friend will pay back the promised amount with an 80% probability and will pay back nothing with a 20% probability. What is the default premium (in addition to the time premium) that the lender should ask from the friend?

31.25%
26.25%
6.25%
5.00%

A published solution is not available for this question yet.

Question 226 MCQ · 4.0 marks

There are two assets: a risk-free asset with a 4% rate of return and a risky asset with an expected rate of return of 19% and a standard deviation of 10%. What is the slope of the Capital Allocation Line (CAL) of a portfolio consisting of these two assets?

1.25
1.5
1.75
2.0

A published solution is not available for this question yet.

Question 227 MCQ · 4.0 marks

A person's utility function is [[IMAGE:192f0f7c576e8804_4_8]] . If the person is indifferent between a risk- free asset (X) yielding 5% and a risky asset (Y) with [[IMAGE:192f0f7c576e8804_4_9]] % and [[IMAGE:192f0f7c576e8804_4_10]] %, what is the coefficient of risk aversion (A)?

10.0
12.5
15.0
18.0

A published solution is not available for this question yet.

Question 228 MCQ · 4.0 marks

An asset (A) has a standard deviation of 20%. The market portfolio (M) has a standard deviation of 5%. The correlation between the asset and the market is 0.2. What is the beta ( [[IMAGE:192f0f7c576e8804_4_11]] ) of asset A?

A published solution is not available for this question yet.

Question 229 MCQ · 4.0 marks

A two-asset portfolio has [[IMAGE:192f0f7c576e8804_5_12]] %, [[IMAGE:192f0f7c576e8804_5_13]] %. To achieve a target expected return of 15%, what weight must be invested in Asset 1?

A published solution is not available for this question yet.

Question 230 MCQ · 4.0 marks

A two-asset portfolio consists of Asset X ( [[IMAGE:192f0f7c576e8804_5_14]] %) and Asset Y ( [[IMAGE:192f0f7c576e8804_5_15]] %). The correlation between the two assets is 0.5. If 60% is invested in X and 40% in Y, what is the portfolio variance ( [[IMAGE:192f0f7c576e8804_5_16]] )?

0.0208
0.0300
0.0484
0.1442

A published solution is not available for this question yet.

Question 231 MCQ · 4.0 marks

An equally weighted portfolio is formed from 25 uncorrelated assets. Each asset has a standard deviation of 25%. What is the standard deviation of the portfolio?

A published solution is not available for this question yet.

Question 232 MCQ · 4.0 marks

What is the fair price of a bet that pays 20 with 20% probability, 50 with 50% probability, and 90 with 30% probability?

A published solution is not available for this question yet.

Question 233 MCQ · 4.0 marks

A farm is worth 40 thousand under flood (20% probability) or 150 thousand in no flood situation (80% probability) next year. The farm was purchased for 100 thousand, financed by a loan of 80 thousand and equity of 20 thousand. The loan requires a promised repayment of 110 thousand. What is the expected payoff for the equity owner next year (in thousands)?

A published solution is not available for this question yet.

Question 234 MCQ · 4.0 marks

For a three-asset portfolio of uncorrelated assets, [[IMAGE:192f0f7c576e8804_7_17]] , [[IMAGE:192f0f7c576e8804_7_18]] , [[IMAGE:192f0f7c576e8804_7_19]] are the weights and [[IMAGE:192f0f7c576e8804_7_20]] is the common (same for the three assets) variance. The portfolio variance is [[IMAGE:192f0f7c576e8804_7_21]] . To find the Global Minimum Variance (GMV) portfolio, you would minimize [[IMAGE:192f0f7c576e8804_7_22]] subject to:

[[IMAGE:192f0f7c576e8804_7_23]]
[[IMAGE:192f0f7c576e8804_7_24]]
[[IMAGE:192f0f7c576e8804_7_25]]
[[IMAGE:192f0f7c576e8804_7_26]]

A published solution is not available for this question yet.

Question 235 MCQ · 4.0 marks

An investor with mean-variance preferences [[IMAGE:192f0f7c576e8804_7_27]] is comparing Asset A ( [[IMAGE:192f0f7c576e8804_7_28]] , [[IMAGE:192f0f7c576e8804_7_29]] ) and Asset B ( [[IMAGE:192f0f7c576e8804_7_30]] , [[IMAGE:192f0f7c576e8804_7_31]] ). Which asset would investor prefer?

Asset A
Asset B
Indifferent
Depends on initial wealth

A published solution is not available for this question yet.

Question 236 MCQ · 4.0 marks

The risk-free rate of return is 6% and the expected market return is 15%. If the beta ( [[IMAGE:192f0f7c576e8804_7_32]] ) of an asset is 1.2, then what is the expected return of the asset according to the Capital Asset Pricing Model (CAPM)?

16.8%
12.0%
10.8%
14.4%

A published solution is not available for this question yet.

Question 237 MCQ · 4.0 marks

An investor decides to short sell 100 shares of Tech Inc. The current share price is Rs. 300. At the end of 1 year, the share price drops to Rs. 275. How much profit does the investor make from exercising the short sale on these shares (Assuming there are no additional costs for this trade)

Rs. 2500
Rs. 2750
Rs. 3000
The investor incurs a loss.

A published solution is not available for this question yet.

Question 238 MCQ · 4.0 marks

A new vineyard is purchased for 700 thousand units. There is a 10% chance of a severe pest infestation in the next year. If there is an infestation, the total payoff of the vineyard will be 300 thousand units in the next year. Otherwise, the vineyard generates a payoff of 900 thousand units in the next year. The appropriate cost of capital is 15% per year. The purchase is financed with a loan of 500 thousand units and the remaining amount as equity. Based on the above data, answer the given subquestions.

What would be the appropriate promised rate of return that the creditor of the loan would demand?

33.33%
21.11%
30.88%
25.00%

A published solution is not available for this question yet.

Question 239 MCQ · 4.0 marks

What is the expected payoff for the equity owner in the next year?

133.33 thousand
166.67 thousand
188.89 thousand
265.00 thousand

A published solution is not available for this question yet.

Question 240 MCQ · 4.0 marks

Anjali, an entrepreneur, has a utility function of the form [[IMAGE:192f0f7c576e8804_9_33]] . If her new product is successful, she expects to earn 1,600 units. If it fails, she will earn 400 units. There is a 40% chance that her product will fail. Based on the above data, answer the given subquestions.

What is Anjali’s expected utility from the venture?

A published solution is not available for this question yet.

Question 241 MCQ · 4.0 marks

Anjali can buy an insurance policy that pays her 1,200 units if the product fails. If she pays a price [[IMAGE:192f0f7c576e8804_10_34]] for this policy, she would be sure to have an income of [[IMAGE:192f0f7c576e8804_10_35]] regardless of success or failure. What would be the largest price ( [[IMAGE:192f0f7c576e8804_10_36]] ) that Anjali would be willing to pay for such an insurance?

256 units
360 units
484 units
576 units

A published solution is not available for this question yet.

Question 242 MCQ · 4.0 marks

Suppose there are two assets, Asset 1 and Asset 2, with the following characteristics: • Expected Rate of Return: [[IMAGE:192f0f7c576e8804_10_37]] , [[IMAGE:192f0f7c576e8804_10_38]] • Standard Deviation: [[IMAGE:192f0f7c576e8804_10_39]] , [[IMAGE:192f0f7c576e8804_10_40]] • Covariance: [[IMAGE:192f0f7c576e8804_10_41]] Based on the above data, answer the given subquestions.

A portfolio is formed with 30% of wealth in Asset 1 and 70% of wealth in Asset 2. What would be the expected rate of return of this portfolio?

0.195
0.205
0.220
0.235

A published solution is not available for this question yet.

Question 243 MCQ · 4.0 marks

What would be the standard deviation of the rate of return of the portfolio described in previous question?

0.396
0.542
0.308
0.234

A published solution is not available for this question yet.

Question 244 MCQ · 4.0 marks

Suppose you would like to construct a portfolio with an expected rate of return of 19%. What weights would you put on Asset 1 and Asset 2, respectively?