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FIRE 314 Exam _2 with answers

# FIRE 314 Exam _2 with answers - Name(PRINT Signature FIRE...

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Name (PRINT) _______________________________ Signature _________________________________ FIRE 314 Exam #2 Fall ‘09 1) The services provided by an investment banker are: _______________________________________ _______ Advice, Marketing / Distribution, Underwriting / Risk Assumption _________________________________________________________________________________ 2) The secondary market provides _____ liquidity _____ and ____ valuation __________, and as a result is the ____ Cap[ital Budgeting Mechanism ________________ of our economy. 3) I enter a sell stop order on 500 shares of PDQ at \$30.00/shr, with a limit at \$28.00. My shares will be sold at _________ above 28 _________________________________________________. 4) I buy 500 shares of ABC at \$25/shr., using 40% margin. If the price of ABC declines to \$17.50, my margin is: Amount Borrowed = 0.6 X 25 = \$15/shr Margin = (17.50 – 15.00)/17.50 = 0.142857 => 14.3% 5) I short 300 shares of XYZ at \$35/shr. A month later XYZ pays a \$0.75 dividend on earnings of \$1.50 / shr. At the end of six months, I cover my short at \$32. My rate of return for the six month period is: (3.00 – 0.75)/35.00 = 0.064285 => 6.43% 6) You predict that DEF will pay a dividend of \$1.00 on earnings of \$2.50/shr. The ROA of DEF is 12 %, the required rate of return is 14%. If the price of DEF is \$10.00/shr., the implied growth rate is: P 0 = D 1 /(k – g) = > g = k – (D 1 /P 0 ) = 0.14 – (1/10) = 0.04 => 4% 7) Identify two

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• Spring '09
• Upton
• implied growth rate, ital Budgeting Mechanism________________, return probability distributions, sell stop order, predicted average outcome

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FIRE 314 Exam _2 with answers - Name(PRINT Signature FIRE...

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