Midterm Examination – August 17, 2012 SOLUTIONS Guidance: 1 . Look at the questions cautiously. 2 . Response all questions around the following internet pages. 3. Monetary calculator and a regular calculator are authorized. 4. A one-sided 8. 5” by 11” solution sheet is definitely permitted with formulas simply. 5. The midterm has 11 webpages, including a couple of blank web pages. 6. Intended for Part 2, show all your work. 7. Midterm period: 75 minutes. 8. Indicate allocation: Displayed on examination.
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All the best!!! Part you: Multiple Decision Part 2: Short Solution and Challenges Question one particular Question two Question a few Question 5 Total /20 /4 /5 /10 /16 /55
Part 1 [2 points each = twenty points]: Multiple Choice. Group of friends the BEST solution. 1 . The Double Dip Co. is usually expecting their ice cream sales to decline due to the improved interest in healthy and balanced eating. Thus, the company has announced that it can be reducing their annual dividend by five per cent a year for two years. After that, it will keep a constant dividend of $1 a discuss. Two weeks in the past, the company paid out a gross of $1. 40 every share. What is this inventory worth in case you require a 9% rate of return? A. $10. 86 B. $11. 11 C. $11. sixty four D. $12. 98 At the. $14. 23 2 . The significance of common share today depends on: A. The expected foreseeable future holding period and the lower price rate. W. The predicted future payouts and the capital gains. C. The anticipated future dividends, capital profits and the price cut rate. G. The anticipated future having period and capital profits. E. non-e of the over. 3. The tax defend on CCA is worked out by: A. The quantity (1-Tc) multiplied by simply CCA. N. Revenues significantly less expenses less CCA. C. The quantity (Revenues-Expenses) multiplied by simply CCA. Deb. Revenues fewer expenses less taxes. Elizabeth. non-e from the above. some. If the task beta-IRR co-ordinates plot above the SML, the project must be: A. Approved because it is overvalued. B. Acknowledged because it is undervalued. C. Refused because it is overvalued. D. Refused because it is undervalued. E. None of the over. 5. The chance set of portfolios is: A. All feasible return mixtures of those securities. B. Almost all possible risk combinations of these securities. C. All possible risk-return combinations of those investments. D. The very best or greatest risk-return combo. E. The lowest risk-return combination. 2
The mix of the efficient set of portfolios with a riskless lending and borrowing rate results in: A. The capital marketplace line which in turn shows that most investors is only going to invest in the riskless asset. W. The capital marketplace line which usually shows that every investors is going to invest in a mix of the riskless asset as well as the tangency profile. C. The safety market series which demonstrates that all traders will buy the riskless asset only. G. The security industry line which shows that almost all investors will certainly invest in a mix of the riskless asset and the tangency portfolio. E. non-e of the over.
Share A has a expected come back of 20%, and share B posseses an expected come back of 4%. However , the chance of stock A as scored by their variance is definitely 3 times those of stock M. If the two stocks are combined equally in a portfolio, what would be the portfolio's expected return? A. 20. 0%. N. 4. 0%.. C. 12. 0%. D. Greater than twenty percent. E. Need to know more information to resolve.
8. Two mutually exclusive purchase opportunities require an initial purchase of $8 million. Expenditure A then simply generates $1,000,000 per year in perpetuity, whilst investment B pays $500, 000 in the first season, with cash flows raising by 5% per year thereafter. Determine the NPV which is why an investor might regard both equally opportunities as being equivalent. A. −$1 million B. $0 C. $1 million D. $2 million E. $8 , 000, 000 9. When comparing two projects with different lives, why will you compute an annuity with an equivalent present value (PV) to the net present value (NPV)? A. So as to...