1 of 10
Your Name:_________________
University of California  Berkeley
Haas School of Business
UGBA103
Prof: Richard Stanton
S
a
m
p
l
e
F
i
n
a
l
E
x
a
m
Instructions:
This is a 3 hour closed book and closed note exam, though you may refer to
notes on both sides of a single 3” x 5” index card. There are a total of
120
points. You
may use a calculator, but not
its accompanying manual.
Show all work.
Write down any
equation you are using.
Answers that only contain a number and a list of buttons
punched on your calculator will receive very little credit.
This test contains
10
pages.
The last question is #
8
.
Jargon section:
(10 points)
In the space provided below
write a brief (one or two sentence) definition or
explanation for each of the following terms. If appropriate, a small, welllabeled diagram
will be acceptable.
Minimum Variance Frontier:
Arbitrage:
Market Risk:
Interest Rate Swap:
Operating Leverage:
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document2 of 10
Problem Section:
1.
5 points.
You have the following information:
Risk free interest rate:
r
Expected return on market portfolio:
R
m
Beta of stock X:
β
Assuming the CAPM holds, what is the expected return on stock X?
2.
10 points.
Sony Corp. is considering expanding its presence in the personal computer market.
Management is trying to determine the appropriate market capitalization rate to use for
these new projects.
They have the following information on other PC manufacturers:
Company
Equity Beta
D/E ratio
Debt Rating
Compaq
1.70
0.35
AAA
Zeos
2.20
1.10
BB
Suppose that AAA debt is virtually riskfree, but that the beta of BBrated debt is about
0.30.
Also, the current riskfree rate is 6%, and the expected excess return on the market
is 8%.
Assume no taxes. Estimate an appropriate market capitalization rate for the
project.
This is the end of the preview.
Sign up
to
access the rest of the document.
 Fall '07
 Berk
 Debt

Click to edit the document details