OSU, Fisher College of Business
MBA 810, Final Exam, Winter 1999
You are allowed 2 hours to answer the following six questions.
There is substantial
credit for method.
Please show all work.
The exam carries a total of 80 points, which are
distributed as shown alongside individual questions.
Two points are reserved for the
grader’s discretion, and will be given based on neatness of presentation.
Good luck.
1.
After he retires, Robert hopes that he will have an investment income of $75,000 per
year in real dollars.
He expects to retire in 25 years, and hopes to live another 20
years after retirement.
After retirement, he will use safe investments for which a 5%
real annual discount rate is appropriate.
Robert has come up with a novel monthly savings plan.
He will start saving from
next month.
His first savings will be $400.
Each month, he will save a larger
amount, growing at the rate 0.50% per month (g).
Investments up to the time he
retires will be made in riskier investments for which a real annual discount rate of
7.5% is considered appropriate.
How much should Robert have already saved up so that, along with this novel
monthly saving plan, he has enough to meet
his retirement needs? (Ignore taxes).
(12
points)
1
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You have determined the following characteristic line for stock XYZ:
r
jt
=
0.04
+
1.15 r
mt
+
e
jt
The riskfree rate is 4.5% and the market risk premium is 8.4%.
XYZ shares are selling for $50 each.
The firm pays out dividends of $0.75 per share
and pursues a dividend policy to pay out 50% of earnings.
What fraction of XYZ’s value comes from growth opportunities (PVGO/P
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 Winter '02
 MAKHIJA
 Business, Management, riskfree rate, Annual Discount Rate

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