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Financial Management and Risk Analysis: Examining the Fama-French Model, EOQ, and Pension Plans

Explores financial models, economic order quantity, and pension plan management.

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    Financial Management and Risk Analysis: Examining the Fama-French Model, EOQ, and Pension Plans, page 1Financial Management and Risk Analysis: Examining the Fama-FrenchModel, EOQ, and Pension PlansQuestion 11.Which of the following are the factors for the Fama-French model?AnswerThe excess market return, a size factor, and abook-to-market factor.The excess market return, a debt factor, and a book-to-market factor.The excess market return, a size factor, and a debt.A debt factor, a size factor, and a book-to-market factor.The excess market return, anindustrial production factor, and a book-to-market factor.8pointsQuestion 21.Which of the following areNOTways risk management can be used to increase the value of afirm?AnswerRisk management can increase debt capacity.Riskmanagement can help a firm maintain its optimal capital budget.Risk management can reduce the expected costs of financial distress.Risk management can help firms minimize taxes.Risk management can allow managers to defer receipt oftheir bonuses and thuspostpone tax payments.8pointsQuestion 31.Which of the following is true of the EOQ model?Note that the optimal order quantity, Q, willbe called EOQ.AnswerIf the fixed per order cost increases by 20%, then EOQ willincrease by 20%If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.If the average inventory increases by 20%, then the total carrying costs will increaseby 20%.If the average inventory increases by 20% thetotal order costs will increase by 20%.The EOC is the same for all comppanies.

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    Financial Management and Risk Analysis: Examining the Fama-French Model, EOQ, and Pension Plans, page 2

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    Financial Management and Risk Analysis: Examining the Fama-French Model, EOQ, and Pension Plans, page 38pointsQuestion 41.Which of the following statements is most CORRECT?AnswerOne advantage of forward contracts is that they are default free.Futurescontracts generally trade on an organized exchange and are marked tomarket daily.Goods are never delivered under forward contracts, but are almost always delivered underfutures contracts.There are futures contracts for currencies but no forward contracts for currencies.Futures contracts don’t have any margin requirements but forward contracts do.8pointsQuestion 51.Which of the following statements is CORRECT?AnswerThe Capital Market Line (CML) is a curved line thatconnects the risk-free rate and themarket portfolio.The slope of the CML is (M–rRF)/bM.All portfolios that lie on the CML to the right ofsMare inefficient.All portfolios that lie on the CML to the left ofsMareinefficient.The slope of the CML is (M–rRF)/M..8pointsQuestion 61.Which of the following statements about pension plans if any, isincorrect?AnswerA defined contribution plan is, in effect, a savings plan that is funded byemployers,although many plans also permit additional contributions by employees.Under a defined benefit plan, the employer agrees to give retirees a specifically definedbenefit, such as $500 per month or 50 percent of the employee’s final salary.A portable pension plan is one that an employee can carry from one employer to another.An employer’s obligation is satisfied under a defined contribution plan when it makes therequired contributions to the plan.The risk of inadequateinvestment returns is borne by theemployee.If assets exceed the present value of benefits, the pension plan is fully funded.

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    Financial Management and Risk Analysis: Examining the Fama-French Model, EOQ, and Pension Plans, page 48pointsQuestion 71.You have the following data on three stocks:StockStandardDeviationBetaA0.150.79B0.250.61C0.201.29As a risk minimizer, you would choose Stockif it is to be held in isolation and Stockif itis to be held as part of a well-diversified portfolio.AnswerA; A.A; B.B; C.C; A.C; B.8pointsQuestion 81.A firm’s credit policy consists of which of the following items?AnswerCredit period, cash discounts, credit standards, receivables monitoring.Credit period, cash discounts, credit standards, collection policy.Credit period, cash discounts, receivables monitoring, collection policy.Cash discounts, creditstandards, receivables monitoring, collection policy.Credit period, receivables monitoring, credit standards, collection policy.8pointsQuestion 91.Which of the following statements concerning the MM extension with growth isNOTCORRECT?AnswerThe tax shields should be discounted at the cost of debt.

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