Asset valuation partial 1

The three main valuation methodologies are:

• Intrinsic valuation, option valuation and contingent valuation

• Intrinsic valuation, option valuation and portfolio valuation

• Intrinsic valuation, relative valuation and contingent claim valuation

• Systematic valuation, unsystematic valuation and diversifiable valuation

The use of valuation models in investment decisions are based upon:

• Assuming that markets are perfectly efficient

• A perception that markets are inefficient

• Assuming that market prices are the best estimate of value

• Assuming that the "bigger fool" is the one who sets the price

The discounted cash flow valuation is based on the assumption that every asset has an intrinsic value that can be estimated, based upon its characteristics in terms of:

• Cash flows, growth and risk

• Cash flows, return and risk

• Cash flow, market price and return

• Cash flow, growth and price

What is contigent claim valuation?

• The use of option pricing models to measure the value of assets that share option-like characteristics.

• The use of legal claims to value assets.

• The use of future discounted cash flows to value assets.

• Valuing assets by looking at how the market prices “similar” or ‘comparable” assets.

What is the objective of diversification in portfolio management?

• To increase the return of the portfolio

• To increase the risk of the portfolio

• To reduce the return of the portfolio

• To reduce the risk of the portfolio

How does diversification is achieved in a portfolio?

• By combining values ​​that do not have perfect correlation between their returns.

• By combining values with a perfect, positive, correlation between their returns.

• By buying overpriced assets while selling underpriced assets.

• By including only low risk assets

The risk of a financial asset, also called volatility, is

• The variance of the returns

• The average of the returns

• The difference between the return and the risk free asset

• The standard deviation of the returns

How do we measure systematic risk?

• We use the expected return.

• We use the standard deviation of returns.

• We use the beta coefficient

• It is not possible to meassure.

What does implies that the beta of an asset is less than 1?

• That the asset has less systematic risk than the overall market.

• That the asset has more systematic risk than the overall market.

• That the asset has the same systematic risk as the overall market.

• That the asset is very risky.

What is the "risk premium"?

• The maximun return obtained in the market.

• The combination of the expected return and the risk-free rate; E(rp )+ rf.

• The premium obtained by diversifiying a portfolio.

• The difference between the expected return of the portfolio and the risk free rate; E(rp )- rf.