IBA Finance Additional Practice Questions
International Business Administration at VU Amsterdam
Course coordinator: M.B.J. Schauten
Course code: E_IBA2_FIN
Period 2
Exam date: 22-12-2022
Academic year: 2022-2023
Additional Practice Questions Finance
This document contains a selection of questions that derive from old exams, the course
material, and covers most topics. Although this file is a suitable test for preparing yourself for
the real exam, please note that this is the basic version. Please have a look at the other offers.
This document is created by M.R.H. Bout, 2646780. Please respect my effort and attempt to
make a comprehensive summary. Feel free to contact me for feedback or additional
comments via m.r.h.bout@student.vu.nl.
This exam bundle is subject to copyright under the Dutch Copyright Act.
I am the copyright holder of this bundle. Publication, in whole or in part, or reproduction of
the contents of this exam bundle, in whatever form, is prohibited without the prior, written,
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Index
Week 1 Basic Concepts & Hirshleifer Model .......................................................................... 3
Week 2 – Investment decision rules and capital budgeting ..................................................... 6
Week 3 – Valuing Bonds and Stocks ........................................................................................ 8
Week 4 – MV Analysis and Portfolio Theory......................................................................... 10
Week 6 – EMH and M&A....................................................................................................... 16
Solutions .................................................................................................................................. 18
Solutions Week 1 ...............................................................................................................................18
Solutions Week 2 – Investment Decision Rules and Capital Budgeting............................................19
Solutions Week 3 ...............................................................................................................................21
Solutions Week 5 ...............................................................................................................................26
Solutions Week 6 ...............................................................................................................................27
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Week 1 – Basic Concepts & Hirshleifer Model
Q1.1
Assume a world according to the Hirshleifer model. The income of Brouwers at t = 0 and t =
1 (CF0 and CF1) is €61,20 and €71,40 respectively. The risk-free interest rate is 2,00%. At t
= 1, Brouwers pays €0,50 in interest. At t = 1 the proceeds of the real investment projects
(OF) are €81,60. At t = 0 the consumption of Brouwers (C0) is €65,00. Consider the figure
below (not drawn to scale).
Question: The net present value of the real investment projects is closest to
A) €21,20
B) €24,20
C) €58,80
D) €62,80
Q1.2 Assume a world according to the Hirshleifer model. The income of Charlotte at t = 0
and t = 1 (CF0 and CF1) is €100,00 and €51,00 respectively. The risk-free interest rate is
2,00%. At t = 0 Charlotte borrows €40,00 and invests €20,00 (EA). At t = 1 the consumption
by Charlotte is €204,00 (C1). Consider the figure from 1.1 (not drawn to scale).
Question: At t = 1 the proceeds from the real investment projects (OF) are closest to
A) €193,80
B) €194,80
C) €195,80
D) €196,80
Q1.3 Assume a world according to the Hirshleifer model. Wilfred owns a barbershop in
Amsterdam from which he earns €250,00 at t = 0 (CF0) and €306,00 at t = 1 (CF1). Wilfred
wants to expand and invests €500,00 in a new shop in Hilversum at t = 0. The expected
proceeds at t = 1 are €765,00. At t = 1 Wilfred consumes €816,00 (C1). The risk-free interest
rate is 2,00%. Consider the figure of 1.1 (Not drawn to scale).
Question: the consumption by Wilfred at t=0 (C0) is closest to
A) €0,00
B) €51,00
C) €100,00
D) €102,00
Q1.4 Assume a world according to the Hirshleifer model. The income of Sarah at t = 0 and t
= 1 is equal to €50,00 (CF0) and €80,00 (CF1) respectively. At t = 0 Sarah invests €60,00 in
real projects and consumes nothing (C0). At t = 1 Sarah consumes €141,20 (C1). The risk
free interest rate is 2,00%.
At t = 1 the proceeds of the investment in real projects is closest to
A) €71,40
B) €14,60
C) €70,40
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