1
University of California  Berkeley
Haas School of Business
UGBA 103
Sample Midterm 2
Instructions:
This is a 1.5 hour closed book and closed note exam, though you may refer to notes
on one side of a 3” x 5” index card. There are a total of 100 points. You may use a calculator, but
no computers are allowed. Show all your work. Write down any equation you are using to allow
us to provide as much credit as possible. This test contains 4
pages. The last question is #5
. All
answers should be written in the space provided under each question.
1.
10 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?
R
x
= r
+
β
(R
m
– r)
2. 20 points
A project has the following cash flows:
Period
0
1
2
CF
100
230
132
Which, if any, of the following are IRRs for this project? 10%, 15%, 20%, 25%. Are
there any other IRRs? Should you undertake the project if the return you expect on other
projects with this level of risk is 8%?
0
)
1
(
132
1
230
100
2
=
+
−
+
+
−
=
IRR
IRR
NPV
Candidate IRR
NPV
10%
0.00
15%
0.189
20%
0.00
25%
0.480
So there are two IRRs: 10% and 20%
There can be no other IRRs because two sign changes indicates there are at most two solutions.
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 Fall '07
 Berk
 Net Present Value

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