Corporate Finance
The exam week is upon us and even though I was well prepared today, the nerves are always there.
Those chilling words “and you may now turn over your papers and begin” echoed around the (different) basketball court (again) as a few hundred of us got our heads down and calculators out.
The exam format was such that there was a multiple choice, two long numerical questions and an essay question to answer in the time. Counterintuitively, by far the most difficult section is always the multiple choice. The reason for this are that you can only be right or wrong (no method marks!), there is little time (only 3mins on average) and because, the lecturers are super worried about people saying it is easy, I recon make it super tricky.
For example:
Which of the following statements is true?
a) The beta of a simple portfolio consisting of only two assets does not
depend on the correlation coefficient between the returns of the assets.
b) According to the CAPM, firms with the same beta will earn the same
expected return, irrespective of how large or small the firms are.
c) Other things being equal, the higher the covariance between the returns
of an asset and the returns of the market, the higher the asset’s beta.
d) All of the above.
e) None of the above.
or
The MacDonald family are considering the following retirement plan: for the next 30
years, they will pay a fixed amount each month into a fund. Thereafter, they will
withdraw £2,500 each month for the following 20 years. If the fund earns a return of
6% per annum, how much (approximately) must they pay into the fund each month
for the first 30 years to finance their withdrawals for the remaining 20 years?
a) £347
b) £363
c) £755
d) £935
e) None of the above.
It is those killer choices at the end ‘All/None of the above’ that make questions like this so tricky. Rather like the GMAT for those reading this who have been through that boot camp of a test.
Happily I think the exam went well regardless so now have my head down for the next three, that are all in quick succession Wednesday through Thursday.
