Module 2: Long Answer Questions

For students

Last updated: 17/08/2025 09:46

The questions are based on or inspired by the following references:

• Berk & DeMarzo, Corporate Finance, 5th ed. (2020)
  
• Brealey & Myers, Principles of Corporate Finance, 13th ed. (2020)

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💡 You can also press Ctrl + P (or Cmd + P on Mac) to print or save your responses as a .pdf file.

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⚠️ These exercises are powered by AI-assisted technologies and may contain occasional formatting or logic errors. Please report any issues you encounter so I can improve the experience.

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📘 Part 1 (until Midterm)

Module	Chapter	Slides	T/F	MCQ	Numeric	Long
2	ch10	🎞️	✅	❓	🔢	📝

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Answer the following questions based on the discussions in class.

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Q1.

Explain the fundamental risk-return tradeoff, using historical data (e.g., Ibovespa vs. Selic) as an example. How can the chosen investment horizon affect this relationship?

Q2.

Define systematic and unsystematic (firm-specific) risk, providing an example for each. Explain why diversification can eliminate unsystematic risk but not systematic risk.

Q3.

Standard deviation measures an asset’s total risk. Explain why this is not the most relevant risk measure for a diversified investor and why beta is considered more appropriate in that context.

Q4.

Define beta (β). In practical terms, what does it mean for a stock to have a beta that is greater than 1, equal to 1, and equal to 0?

Q5.

Explain why the market offers a risk premium for bearing systematic risk but not for bearing total risk. Discuss the central role of diversification in your answer.