SPECIMEN

DOUBT 1: With regards to interest rate and purchase power parity theory the mcq says:

Both theories hold in the long term rather than the short term.

Now, my doubt is 1. I only read about PPP being true in the long term.
2. if this was true for Interest rate parity then why do we depend on calculating FORWARDS which is for less than 1 year which means that we use it for short term and actually rely on it being true for short term.

DOUBT 2. why have they used inflated cashflows for
calculating ROCE, I used non inflated however the same conclusion is being reached. would it be correct?

DOUBT 3.
”’ In a perfect capital market, the existence of dividend clienteles is irrelevant, since substituting one company for another will not incur any transaction costs. Since real-world capital markets are not perfect, however, the existence of dividend clienteles suggests that if Froste Co changes its dividend policy, its share price could be affected.”’

I don’t understand the context in which transaction cost is being referred to? Is it that in a perfect market, the change in share prices would be like a compensating effect as in the same no. of shareholders disposing and buying the suited shares so price is constant but in real world shareholders would be reluctant to sell and buy because of transaction costs. hence share price will change