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Week 1 Quiz 2

Quiz by Chi Truong

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5 questions
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  • Q1
    Which of the following provides INCORRECT description of the corporate governance principles
    The board of director appoints CEO, sets risk appetite, oversees reporting systems
    Board of directors needs to provide shareholders with timely and appropriate information
    The board of directors is chaired by a director who is directly involved in the daily management of the company
    Majority of the board are independent directors with adequate skills and knowledge
    90s
  • Q2
    Which of the following provides INCORRECT description of Fisher’s separation theorem
    In a free, competitive capital market, shareholders can spread their wealth across time by lending and borrowing.
    In a free, competitive capital market, all shareholders including highly risk adverse ones, value the managers’ efforts in making smart investment decisions to increase the company’s share price
    In a free, competitive capital market, shareholders only value the managers’ efforts in paying out dividends
    In a free, competitive capital market, shareholders can buy or sell shares at the market value to meet their personal consumption and risk appetite
    90s
  • Q3
    A European call option gives the option holder the right, but not the obligation, to buy a stock at the strike price at maturity of the option. Suppose company A gives its CEO 1000 European call options at the beginning of the year and the strike price is set at the stock price at the beginning of the year, K = $50. The maturity of the option is one year. What are these options worth at the end of the year if stock price goes down to $20? goes up to $100?
    $50,000; $50,000
    $0;50000
    -$30000:50000
    $0; $20000
    90s
  • Q4
    Suppose company A compensates its CEO with 1000 European call options at the beginning of the year, with the strike price equal to the stock price at the beginning of the year. The maturity of the option is one year. Which of the following is INCORRECT?
    In a bullish year, the value of the options will increase even if the CEO does not work very hard. The compensation package rewards the CEO for no reason.
    The package encourages the CEO to withhold bad news or manipulate earnings at the time of maturity of the options
    In a bearish year, the value of the options will be small even if the CEO work very hard. The compensation package does not reward hardworking CEO
    None of the above statements is incorrect
    90s
  • Q5
    Which of the following statements about financial markets is INCORRECT?
    Financial markets provide continuous information about share prices and encourage honest reporting about companies’ earnings
    Not all companies find it beneficial to be listed
    Financial market helps to discipline mangers. Poorly performed companies will see their share prices fall and can be taken over by other management teams
    Financial markets provide useful information that facilitates decision making by managers. Poor decisions will be followed by drops in share price and managers can monitor share prices to make better decisions
    90s

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