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final-mba810-wi2000

# final-mba810-wi2000 - First Name Last Name Social security...

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___________________ _____________ _______________ ____________ First Name, Last Name Social security # Section: 8:30/10:30 Score out of 80 Fisher College of Business, OSU MBA 810 -- Final Exam, Winter 2000 Anil K. Makhija You have two hours to complete the six questions on this exam. There is substantial credit for method; please show all work neatly. Points for each part are written alongside the questions. Good luck!! 1. As a financial consultant, you are comparing two alternatives for a client. The client is interested in paying for his daughter’s undergraduate education. She is expected to start going to her undergraduate school in ten years (t=10). She expects her program to take her 5 years to complete (t=11 to t=15). Currently the real annual tuition is expected to be \$7,000 per year (t=1), and for the real tuition amount to grow at 5%. . As is typical, tuition for any year must be paid at the beginning of the year. Alternative 1: The client should simply wait till his daughter goes to college, and pay for it as the tuition payments come due Alternative 2: Pay an investment company some monthly amount for the next 5 years, in exchange the investment company will be responsible for all tuition payments. The nominal discount rate for both alternatives is 12%. It is predicted that there will be an annual inflation rate of 3% indefinitely. What must be the real dollar monthly payment to the investment company for your client to be indifferent to the two alternatives? (10 points) 2. An analyst has made the following forecasts for the dividends of Stock CDE for the next 5 years: DIV 1 = 1.50 DIV 2 = 1.75 DIV 3 = 2.00 DIV 4 = 2.25 DIV 5 = 2.50 Beyond the 5 years, he predicts that dividends will grow at a constant rate of 5% per year. He has

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