Midterm - Name Midterm Exam FIN 4504 Equity and Capital...

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Name: _____________________ Midterm Exam FIN 4504 Equity and Capital Markets -- Fall 2004 October 14, 2004 Instructor: Cem Demiroglu I. Multiple Choice Questions Each multiple choice question is worth 2 points. There is no partial credit for multiple choice questions. Please circle the correct answer. If you choose more than one answer, you will get zero credit for the question. 1) Suppose the share of DEC had an initial price of $62 per share. The firm paid a $1.25 dividend during the year, did a 2-for-1 stock split and had an ending share price of $35. What is the holding period return for DEC? a) 14.9% b) 18.7% c) -23.8% d) -45.5% 2) If the market prices of the 30 stocks in the Dow Jones Industrial Average all change by the same dollar amount on a given day (ignoring the stock splits), which stock will have the greatest impact on the average? 3) Why do put options with exercise prices lower than the price of the underlying stock sell for positive prices? 4) Barnegat Light sold 200,000 shares in an initial public offering. The underwriter's explicit fees were $70,000. The offering price for the shares was $25, but immediately upon issue, the share price jumped to $41. What is the best estimate of the total cost (direct plus indirect) to Barnegat Light of the equity issue? 1
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5) The value of a firm is equal to _______________________ . a) The value of its equity b) The value of its debt c) The total value of its equity and debt d) Its market capitalization 6) Managers may consider a stock repurchase when their firm’s stock is _______________, or an equity issue when the stock is ________________ . 7) Consider the following limit order book of a specialist. The last trade in the stock occurred at a price of $40. L i m i t B u y O r d e r s L i m i t S e l l O r d e r s P r i c e S h a r e s P r i c e S h a r e s $ 3 9 . 7 5 1 0 0 $ 4 0 . 2 5 1 0 0 $ 3 9 . 5 0 1 0 0 $ 4 0 . 5 0 1 0 0 If a market buy order for 100 shares comes in, at what price will it be filled?
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