final-mba810-wi99 - OSU Fisher College of Business MBA 810...

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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 risk-free 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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final-mba810-wi99 - OSU Fisher College of Business MBA 810...

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