Instruction
Short-Essay Questions
* You can make a couple of paragraphs with a-half page length. *******(All 4 answers can fit into half a page) *********
* The quality of your answer is more important than the quantity/length of your answer.
* The evaluation is relative from 1 to 5 (using 5-scale Likert scale).
Questions: (power point to answer questions 1 and 4 uploaded)
(1) CAPM predicts that the risk premium increase in proportion to beta of a security. Justify this statement using Figures 10.6 and 10.7 in Chapter 10.
(2) Explain why the CAPM is a practical way to price risky assets.
(3) Discuss about characteristics/advantages of the three different valuation methods (WACC, APV, and FTE).
(4) In Chapter 19, proposed purchase price was $150 million. Assess whether the valuation results make sense.