midterm06b_answers

midterm06b_answers - UGBA 103 Midterm Exam 2 October 30,...

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1 UGBA 103 – Midterm Exam 2 October 30, 2006 name : section # : SID# : This is a closed book and closed note exam, though you may refer to notes on one side of a 3” x 5” index card. You may use a calculator, but no computers/PDAs/manuals are allowed. Show all your work , and write down any equations you use and/or your calculator steps, to allow us to provide as much credit as possible. This test contains 6 pages. The last question is #3. All answers should be written in the space provided. Points are roughly proportional to the suggested number of minutes for each question. This midterm is rated for 1 hour and 20 minutes. To get credit for this exam, please fill in your SID# on the top right corner of every page AND on the back of this exam. Please do this now. Grading (for official use only) question 1 _________ out of 30 points 20 min question 2 _________ out of 40 points 25 min question 3 _________ out of 50 points 35 min total out of 120 points expected exam time: 1 hr 20
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2 1. Short answer questions Please put answers on right 30 points (6 each), 20 minutes A) Stock X has an expected return of 5%. Stock Y has an expected A: _________ return of 10%. If a portfolio contains $50 worth of X, and $150 worth of Y, what is the expected return on the portfolio? Weights: w X = 50 / 200 = 25%, and w Y = 150 / 200 = 75% So the expected return on the portfolio is E[R] = w X E[R X ] + w Y E[R Y ] = (.25)(.05) + (.75)(.10) = 8.75% B) An investment requires you to invest $1,000 today, and will pay you B: _________ $1,350 in one year. What is its IRR? The IRR is the discount rate that sets the NPV of the investment to zero: 0 = -1000 + 1,350 / (1+ IRR) So the IRR = 1,350 / 1000 - 1 = 35% (for a one period investment, IRR = rate of return) C) The risk-free rate is 5% and the expected return on the market is C: _________ 11%. If a stock has a beta of 1.3, and the CAPM holds, what is the stock’s expected return? E[R] = R
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midterm06b_answers - UGBA 103 Midterm Exam 2 October 30,...

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