Midterm%20Exam%20UGBA%20103%20Sp%202010%20ALL

Midterm%20Exam%20UGBA%20103%20Sp%202010%20ALL - EXAM...

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Unformatted text preview: EXAM QUESTION PACKET # 101 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 101, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,811.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $40.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $178.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,081.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,081.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $68,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.1%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.65 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.8% per year, what should its share price be if its equity cost of capital is 12.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 102 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 102, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,166.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $40.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $171.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,016.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,016.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $160 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $111,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.62%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.55 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.1% per year, what should its share price be if its equity cost of capital is 16.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 103 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 103, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,331.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $41.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,133.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,133.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $83,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.14%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.44 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.3% per year, what should its share price be if its equity cost of capital is 19.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 104 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 104, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,597.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $41.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $185.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,159.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,159.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $170 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $145,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.76%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.2% 3 5.5% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.33 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.5% per year, what should its share price be if its equity cost of capital is 13.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 105 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 105, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,862.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $42.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $178.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,086.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,086.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $118,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.28%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.22 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.8% per year, what should its share price be if its equity cost of capital is 16.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 106 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 106, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,128.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $42.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $161.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,112.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,112.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $71,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.8%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.12 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.1% per year, what should its share price be if its equity cost of capital is 11.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 107 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 107, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,393.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $42.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $153.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,039.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,039.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $130 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $143,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.32%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.11 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.3% per year, what should its share price be if its equity cost of capital is 14.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 108 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 108, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,658.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $43.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $186.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,165.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,165.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $106,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.82%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.91 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.6% per year, what should its share price be if its equity cost of capital is 17.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 109 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 109, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,924.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $43.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $169.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,192.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,192.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $40 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $79,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.44%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.8% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.89 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.9% per year, what should its share price be if its equity cost of capital is 11.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 110 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 110, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,189.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $44.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $151.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,018.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,018.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $131,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.96%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.79 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.1% per year, what should its share price be if its equity cost of capital is 14.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 111 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 111, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,454.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $44.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $154.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,045.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,045.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $40 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $104,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.48%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.8% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.68 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.4% per year, what should its share price be if its equity cost of capital is 18.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 112 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 112, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,721.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $44.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $177.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,072.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,072.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $77,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.12%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.57 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.7% per year, what should its share price be if its equity cost of capital is 12.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 113 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 113, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,985.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $45.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $169.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,198.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,198.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $50 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $139,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.52%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.8% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.46 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.9% per year, what should its share price be if its equity cost of capital is 15.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 114 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 114, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,251.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $45.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $162.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,125.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,125.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $102,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.14%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.36 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.2% per year, what should its share price be if its equity cost of capital is 19.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 115 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 115, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,516.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $46.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $175.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,051.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,051.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $60 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $65,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.66%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.3% 3 5.5% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.25 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.5% per year, what should its share price be if its equity cost of capital is 12.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 116 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 116, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,781.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $46.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $177.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,078.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,078.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $137,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.18%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.14 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.7% per year, what should its share price be if its equity cost of capital is 16.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 117 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 117, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,147.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $46.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $161.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,114.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,114.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $170 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $91,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.72%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.14 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.1% per year, what should its share price be if its equity cost of capital is 11.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 118 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 118, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,312.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $47.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $183.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,131.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,131.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $120 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $63,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.2%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.93 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.3% per year, what should its share price be if its equity cost of capital is 13.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 119 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 119, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,577.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $47.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $185.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,157.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,157.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $70 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $125,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.72%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.82 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.5% per year, what should its share price be if its equity cost of capital is 17.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 120 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 120, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,843.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $48.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $168.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,184.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,184.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $130 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $98,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.34%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.71 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.8% per year, what should its share price be if its equity cost of capital is 11.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 121 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 121, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,118.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $48.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $151.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,011.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,011.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $80 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $61,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.86%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.61 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.1% per year, what should its share price be if its equity cost of capital is 14.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 122 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 122, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,373.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $48.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $183.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,137.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,137.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $130 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $123,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.38%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.51 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.3% per year, what should its share price be if its equity cost of capital is 17.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 123 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 123, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,639.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $49.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $166.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,163.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,163.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $90 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $86,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.9%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.49 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.6% per year, what should its share price be if its equity cost of capital is 11.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 124 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 124, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,914.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $49.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $169.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,191.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,191.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $140 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $69,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.42%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.38 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.9% per year, what should its share price be if its equity cost of capital is 15.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 125 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 125, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,169.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $50.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $151.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,016.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,016.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $90 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $111,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.94%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.28 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.1% per year, what should its share price be if its equity cost of capital is 18.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 126 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 126, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,435.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $50.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $174.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,043.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,043.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $150 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $84,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.56%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.17 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.4% per year, what should its share price be if its equity cost of capital is 12.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 127 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 127, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,711.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $50.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $167.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,171.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,171.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $67,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.18%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.16 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.7% per year, what should its share price be if its equity cost of capital is 15.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 128 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 128, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,965.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $51.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $169.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,196.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,196.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $150 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $119,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.58%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.95 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.9% per year, what should its share price be if its equity cost of capital is 19.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 129 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 129, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,231.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $51.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $182.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,123.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,123.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $82,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.12%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.85 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.2% per year, what should its share price be if its equity cost of capital is 13.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 130 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 130, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,496.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $52.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $174.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,049.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,049.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $160 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $144,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.62%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.74 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.4% per year, what should its share price be if its equity cost of capital is 16.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 131 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 131, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,762.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $52.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $167.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,176.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,176.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $117,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.24%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.4% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.63 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.7% per year, what should its share price be if its equity cost of capital is 11.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 132 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 132, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,127.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $52.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $181.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,112.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,112.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $170 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $71,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.76%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.53 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.1% per year, what should its share price be if its equity cost of capital is 13.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 133 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 133, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,292.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $53.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $182.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,129.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,129.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $142,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.28%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.4% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.42 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.2% per year, what should its share price be if its equity cost of capital is 17.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 134 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 134, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,558.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $53.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $165.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,155.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,155.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $105,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.82%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.31 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.5% per year, what should its share price be if its equity cost of capital is 11.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 135 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 135, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,823.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $54.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $158.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,082.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,082.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $30 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $78,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.32%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.7% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.21 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.8% per year, what should its share price be if its equity cost of capital is 14.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 136 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 136, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,188.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $54.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $151.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,018.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,018.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $131,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.84%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.11 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.1% per year, what should its share price be if its equity cost of capital is 18.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 137 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 137, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,354.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $54.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,135.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,135.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $140 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $103,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.46%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.7% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.19 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.3% per year, what should its share price be if its equity cost of capital is 11.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 138 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 138, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,619.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $55.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $166.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,161.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,161.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $66,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.96%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.98 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.6% per year, what should its share price be if its equity cost of capital is 15.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 139 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 139, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,884.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $55.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $158.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,088.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,088.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $40 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $138,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.48%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.87 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.8% per year, what should its share price be if its equity cost of capital is 18.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 140 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 140, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,151.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $56.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $171.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,015.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,015.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $101,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.1%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.77 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.1% per year, what should its share price be if its equity cost of capital is 12.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 141 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 141, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,415.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $56.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $174.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,041.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,041.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $50 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $64,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.52%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.66 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.4% per year, what should its share price be if its equity cost of capital is 16.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 142 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 142, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,681.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $56.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $166.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,168.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,168.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $136,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.14%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.55 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.6% per year, what should its share price be if its equity cost of capital is 19.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 143 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 143, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,946.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $57.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $189.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,194.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,194.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $60 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $99,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.66%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.44 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.9% per year, what should its share price be if its equity cost of capital is 13.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 144 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 144, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,211.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $57.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $172.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,021.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,021.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $62,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.18%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.34 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.2% per year, what should its share price be if its equity cost of capital is 16.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 145 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 145, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,477.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $58.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $164.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,147.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,147.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $70 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $124,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.7%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.23 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.4% per year, what should its share price be if its equity cost of capital is 11.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 146 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 146, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,742.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $58.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $157.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,074.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,074.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $120 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $97,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.22%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.12 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.7% per year, what should its share price be if its equity cost of capital is 14.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 147 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 147, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,117.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $58.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $181.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,111.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,111.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $170 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $61,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.72%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.92 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.1% per year, what should its share price be if its equity cost of capital is 17.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 148 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 148, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,273.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $59.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $162.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,127.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,127.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $30 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $122,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.34%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.81 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.2% per year, what should its share price be if its equity cost of capital is 11.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 149 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 149, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,538.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $59.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $155.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,053.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,053.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $85,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.86%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.2% 3 5.4% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.71 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.5% per year, what should its share price be if its equity cost of capital is 14.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 150 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 150, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,813.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $60.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $158.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,081.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,081.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $30 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $68,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.38%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.69 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.8% per year, what should its share price be if its equity cost of capital is 18.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 151 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 151, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,169.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $60.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $171.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,016.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,016.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $111,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.92%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.59 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.1% per year, what should its share price be if its equity cost of capital is 12.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 152 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 152, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,334.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $60.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,133.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,133.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $40 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $83,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.42%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.48 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.3% per year, what should its share price be if its equity cost of capital is 15.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 153 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 153, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,599.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $61.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $165.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,159.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,159.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $145,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.94%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.2% 3 5.4% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.37 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.5% per year, what should its share price be if its equity cost of capital is 19.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 154 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 154, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,865.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $61.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $178.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,086.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,086.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $50 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $118,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.56%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.26 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.8% per year, what should its share price be if its equity cost of capital is 12.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 155 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 155, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,131.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $62.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $171.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,013.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,013.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $81,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.18%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.5% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.16 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.1% per year, what should its share price be if its equity cost of capital is 16.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 156 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 156, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,396.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $62.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,139.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,139.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $160 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $143,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.62%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.15 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.3% per year, what should its share price be if its equity cost of capital is 11.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 157 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 157, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,661.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $62.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $186.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,166.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,166.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $116,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.1%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.94 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.6% per year, what should its share price be if its equity cost of capital is 13.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 158 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 158, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,926.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $63.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $189.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,192.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,192.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $60 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $79,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.62%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.8% 3 6.1% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.83 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.9% per year, what should its share price be if its equity cost of capital is 17.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 159 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 159, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,192.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $63.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $161.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,119.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,119.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $120 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $141,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.24%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.73 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.1% per year, what should its share price be if its equity cost of capital is 11.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 160 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 160, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,457.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $64.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $154.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,045.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,045.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $70 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $104,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.76%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.8% 3 6.1% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.62 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.4% per year, what should its share price be if its equity cost of capital is 14.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 161 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 161, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,722.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $64.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $187.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,172.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,172.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $120 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $77,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.28%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.51 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.7% per year, what should its share price be if its equity cost of capital is 17.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 162 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 162, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,988.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $64.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $169.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,198.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,198.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $80 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $139,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.8%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.8% 3 6.1% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.41 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.9% per year, what should its share price be if its equity cost of capital is 11.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 163 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 163, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,253.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $65.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $162.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,125.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,125.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $130 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $102,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.32%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.31 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.2% per year, what should its share price be if its equity cost of capital is 15.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 164 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 164, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,518.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $65.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $155.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,051.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,051.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $80 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $65,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.84%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.29 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.5% per year, what should its share price be if its equity cost of capital is 18.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 165 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 165, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,784.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $66.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $177.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,078.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,078.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $140 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $137,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.46%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.18 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.7% per year, what should its share price be if its equity cost of capital is 12.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 166 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 166, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,149.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $66.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $161.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,114.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,114.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $91,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.98%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.18 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.1% per year, what should its share price be if its equity cost of capital is 15.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 167 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 167, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,314.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $66.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,131.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,131.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $140 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $63,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.48%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.97 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.3% per year, what should its share price be if its equity cost of capital is 19.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 168 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 168, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,581.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $67.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $185.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,158.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,158.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $135,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.12%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.86 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.5% per year, what should its share price be if its equity cost of capital is 13.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 169 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 169, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,845.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $67.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $178.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,084.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,084.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $150 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $98,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.52%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.75 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.8% per year, what should its share price be if its equity cost of capital is 16.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 170 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 170, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,111.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $68.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $161.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,111.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,111.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $61,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.14%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.65 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.1% per year, what should its share price be if its equity cost of capital is 11.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 171 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 171, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,376.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $68.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $183.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,137.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,137.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $160 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $123,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.66%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.54 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.3% per year, what should its share price be if its equity cost of capital is 13.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 172 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 172, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,641.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $68.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $186.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,164.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,164.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $96,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.18%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.43 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.6% per year, what should its share price be if its equity cost of capital is 17.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 173 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 173, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,917.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $69.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $169.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,191.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,191.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $170 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $69,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.72%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.32 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.9% per year, what should its share price be if its equity cost of capital is 11.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 174 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 174, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,172.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $69.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $151.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,017.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,017.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $121,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.22%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.22 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.1% per year, what should its share price be if its equity cost of capital is 14.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 175 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 175, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,437.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $70.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $154.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,043.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,043.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $170 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $84,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.74%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.11 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.4% per year, what should its share price be if its equity cost of capital is 18.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 176 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 176, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,713.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $70.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $167.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,171.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,171.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $130 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $67,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.36%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.11 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.7% per year, what should its share price be if its equity cost of capital is 11.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 177 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 177, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,968.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $70.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $169.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,196.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,196.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $119,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.86%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.99 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.9% per year, what should its share price be if its equity cost of capital is 15.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 178 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 178, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,233.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $71.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $152.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,023.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,023.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $30 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $82,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.38%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.89 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.2% per year, what should its share price be if its equity cost of capital is 18.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 179 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 179, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,499.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $71.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $174.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,049.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,049.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $144,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.9%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.78 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.4% per year, what should its share price be if its equity cost of capital is 12.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 180 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 180, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,764.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $72.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $177.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,076.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,076.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $40 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $117,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.42%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.67 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.7% per year, what should its share price be if its equity cost of capital is 16.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 181 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 181, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,129.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $72.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $161.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,112.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,112.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $71,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.94%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.57 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.1% per year, what should its share price be if its equity cost of capital is 19.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 182 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 182, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,295.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $72.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $182.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,129.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,129.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $50 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $142,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.56%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.46 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.2% per year, what should its share price be if its equity cost of capital is 13.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 183 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 183, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,561.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $73.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $175.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,056.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,056.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $115,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.18%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.2% 3 5.5% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.35 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.5% per year, what should its share price be if its equity cost of capital is 16.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 184 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 184, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,826.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $73.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $168.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,182.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,182.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $60 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $78,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.6%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.24 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.8% per year, what should its share price be if its equity cost of capital is 11.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 185 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 185, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,191.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $74.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $151.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,019.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,019.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $141,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.12%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.14 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.1% per year, what should its share price be if its equity cost of capital is 14.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 186 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 186, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,356.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $74.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $183.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,135.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,135.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $160 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $103,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.64%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.13 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.3% per year, what should its share price be if its equity cost of capital is 17.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 187 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 187, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,622.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $74.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $166.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,162.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,162.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $120 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $76,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.24%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.92 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.6% per year, what should its share price be if its equity cost of capital is 11.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 188 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 188, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,887.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $75.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $158.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,088.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,088.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $70 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $138,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.76%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.7% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.81 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.8% per year, what should its share price be if its equity cost of capital is 14.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 189 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 189, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,152.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $75.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $151.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,015.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,015.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $120 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $101,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.28%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.71 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.1% per year, what should its share price be if its equity cost of capital is 18.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 190 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 190, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,418.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $76.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $174.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,041.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,041.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $80 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $64,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.82%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.61 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.4% per year, what should its share price be if its equity cost of capital is 12.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 191 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 191, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,683.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $76.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $166.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,168.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,168.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $130 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $136,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.32%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.59 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.6% per year, what should its share price be if its equity cost of capital is 15.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 192 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 192, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,948.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $76.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $169.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,194.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,194.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $80 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $99,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.84%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.48 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.9% per year, what should its share price be if its equity cost of capital is 19.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 193 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 193, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,214.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $77.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $172.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,021.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,021.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $140 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $62,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.46%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.38 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.2% per year, what should its share price be if its equity cost of capital is 12.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 194 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 194, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,479.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $77.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $174.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,047.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,047.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $124,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.98%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.17 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.4% per year, what should its share price be if its equity cost of capital is 16.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 195 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 195, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,745.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $78.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $167.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,174.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,174.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $150 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $97,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.52%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.16 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.7% per year, what should its share price be if its equity cost of capital is 11.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 196 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 196, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,111.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $78.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $181.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,111.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,111.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $61,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.1%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.96 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.1% per year, what should its share price be if its equity cost of capital is 13.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 197 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 197, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,275.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $78.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $182.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,127.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,127.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $50 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $122,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.52%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.85 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.2% per year, what should its share price be if its equity cost of capital is 17.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 198 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 198, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,541.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $79.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $165.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,154.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,154.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $95,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.14%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.74 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.5% per year, what should its share price be if its equity cost of capital is 11.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 199 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 199, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,816.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $79.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $158.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,081.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,081.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $60 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $68,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.66%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.63 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.8% per year, what should its share price be if its equity cost of capital is 14.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 200 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 200, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,171.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $80.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $181.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,117.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,117.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $110 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $121,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.18%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.53 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.1% per year, what should its share price be if its equity cost of capital is 17.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 201 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 201, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,337.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $80.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,133.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,133.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $70 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $83,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.7%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.42 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.3% per year, what should its share price be if its equity cost of capital is 11.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 202 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 202, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,612.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $80.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $166.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,161.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,161.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $120 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $66,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.22%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.31 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.6% per year, what should its share price be if its equity cost of capital is 15.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 203 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 203, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,867.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $81.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $158.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,086.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,086.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $70 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $118,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.74%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.21 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.8% per year, what should its share price be if its equity cost of capital is 18.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 204 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 204, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,133.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $81.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $171.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,013.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,013.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.3%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $130 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $81,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.36%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.11 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.1% per year, what should its share price be if its equity cost of capital is 12.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 205 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 205, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,398.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $82.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,139.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,139.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $143,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.88%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.5% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.19 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.3% per year, what should its share price be if its equity cost of capital is 15.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 206 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 206, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,663.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $82.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $166.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,166.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,166.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $130 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $116,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.38%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.5% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.98 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.6% per year, what should its share price be if its equity cost of capital is 19.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 207 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 207, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,929.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $82.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $189.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,192.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,192.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $90 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $79,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.92%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.8% 3 6.1% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.87 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.9% per year, what should its share price be if its equity cost of capital is 13.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 208 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 208, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,194.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $83.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $171.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,019.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,019.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $140 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $141,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.42%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.3% 3 5.5% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.77 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.1% per year, what should its share price be if its equity cost of capital is 16.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 209 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 209, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,461.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $83.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $164.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,146.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,146.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.6%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $114,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.14%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.66 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.4% per year, what should its share price be if its equity cost of capital is 11.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 210 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 210, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $25,725.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $84.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $187.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,172.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,172.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $150 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $77,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.56%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.55 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.7% per year, what should its share price be if its equity cost of capital is 13.5%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 211 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 211, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,991.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $84.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $189.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,199.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,199.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.9%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $149,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.18%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.44 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.9% per year, what should its share price be if its equity cost of capital is 17.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 212 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 212, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $24,256.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $84.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $162.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,125.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,125.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $160 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $102,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.62%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.34 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.2% per year, what should its share price be if its equity cost of capital is 11.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 213 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 213, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $23,521.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $85.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 6.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $155.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,052.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,052.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.2%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $10 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $75,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.12%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.4% 3 5.6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.23 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.5% per year, what should its share price be if its equity cost of capital is 14.1%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 21% when the market goes up and goes down by -14% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 214 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 214, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,786.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $85.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $157.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,078.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,078.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $160 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $137,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.64%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.2% 2 5.6% 3 5.8% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.12 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.7% per year, what should its share price be if its equity cost of capital is 18.6%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 215 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 215, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $22,152.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $86.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $161.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,115.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,115.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.5%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.1% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $120 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $101,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.26%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.5% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.12 at the end of this year. If you expect Summit’s (annual) dividend to grow by 2.1% per year, what should its share price be if its equity cost of capital is 11.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 18% when the market goes up and goes down by -12% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 216 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 216, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,317.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $86.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 7.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,131.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,131.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.9% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $170 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $63,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.76%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.91 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.3% per year, what should its share price be if its equity cost of capital is 15.7%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 42% when the market goes up and goes down by -28% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 217 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 217, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $21,582.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $86.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $155.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,058.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,058.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.8%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.8% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $135,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.28%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.81 at the end of this year. If you expect Summit’s (annual) dividend to grow by 5.5% per year, what should its share price be if its equity cost of capital is 18.2%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by -26% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 218 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 218, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,848.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $87.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 4.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $178.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,084.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,084.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.7% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $98,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 4.8%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.79 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.8% per year, what should its share price be if its equity cost of capital is 12.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 36% when the market goes up and goes down by -24% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 219 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 219, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $29,113.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $87.60 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $171.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,011.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,011.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 6.6% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $30 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $61,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.32%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.69 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.1% per year, what should its share price be if its equity cost of capital is 16.3%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 33% when the market goes up and goes down by -22% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 220 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 220, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $28,378.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $88.00 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $163.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,137.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,137.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 5.5% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $180 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $123,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 7.84%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.3% 2 5.6% 3 5.9% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.58 at the end of this year. If you expect Summit’s (annual) dividend to grow by 4.3% per year, what should its share price be if its equity cost of capital is 19.8%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 30% when the market goes up and goes down by -20% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 221 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 221, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $27,644.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $88.40 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 5.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $186.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,164.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,164.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 5.4%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 9.4% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $40 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $96,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 6.46%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.1% 2 5.4% 3 5.7% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.47 at the end of this year. If you expect Summit’s (annual) dividend to grow by 6.6% per year, what should its share price be if its equity cost of capital is 13.4%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 27% when the market goes up and goes down by -18% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 222 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 222, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,919.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $88.80 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 2.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $179.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,091.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,091.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.1%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 8.3% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $190 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long term lease on the fields for which he pays $10,000 at the beginning of each month. There are no legal restrictions to his hosting the festival on this leased land. The festival promoters will need use of the fields for 2 months. However, they will not need the fields until after the fall harvest and they will be gone well before Farmer Bill needs to plow for planting the next crop. Farmer Bill has no other plans to use the fields between harvest and planting; in fact, he has never before heard of a farmer earning money from his fields between harvest and planting. The promoters will clean up after the festival and restore the fields to their original condition. The promoters will pay Farmer Bill $69,000.00 today if he will let them hold the Festival on his fields. They will also take out a more than adequate liability insurance policy in his name and post a bond to cover any damage to the property. However, the promoters insist that as part of the deal, Farmer Bill make repairs to the dirt road leading to the fields. A local contractor has agreed to make these repairs for $20,000 payable six months from today. All cash flows are certain. The risk-free interest rate is 1% per month. Farmer Bill does not anticipate any inconvenience to himself or further need for of his time if he accepts this opportunity. What is the NPV of this opportunity? (Round to the closest dollar.) 9. Suppose a seven-year, $1,000 bond with a 9.00% coupon rate and semiannual coupons is trading with a yield to maturity of 5.98%. What is the price of the bond? (Round to the closest cent.) 10. Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity (years) Zero-coupon YTM 1 5.4% 2 5.7% 3 6% 4 6.20% 5 6.40% a) (4 points) What is the price of a three-year, default free security with a face value of $1,000 and an annual coupon rate of 4%? (Round to nearest cent.) b) (3 points) What is the yield to maturity for this bond? (Round in percent to two decimal places.) c) (3 points) What is the coupon payment on a two-year, default free annual coupon bond with a face value of $1,000 that trades at par? 11. Summit Systems will pay a dividend of $1.36 at the end of this year. If you expect Summit’s (annual) dividend to grow by 3.9% per year, what should its share price be if its equity cost of capital is 16.9%? (Round to nearest cent.) 12. Suppose the market portfolio is equally likely to increase by 30% or decrease by 20% a. Calculate the beta of a firm that goes up on average by 24% when the market goes up and goes down by -16% when the market goes down. (Round to one decimal place.) b. Calculate the beta of a firm that is expected to go up 4% independently of the market. (Round to one decimal place.) EXAM QUESTION PACKET # 223 Midterm Exam UGBA 103 Spring 2010 Do not open this question packet until instructed to do so. IMPORTANT: ALL ANSWERS MUST BE ENTERED ON THE SEPERATELY PROVIDED ANSWER SHEET! ANSWERS WRITTEN IN THIS EXAM PACKET BUT NOT ENTERED ON THE ANSWER SHEET WILL NOT BE COUNTED. 1. Print your name here: ____________________ 2. Print your SID # here: ____________________ 3. Print your name and SID # on the answer sheet. 4. Sign the answer sheet. 5. Write your three digit exam packet number, 223, on your answer sheet. If you fail to do so, you may not get credit for this midterm. This midterm exam is closed book. You may refer to 1 single-sided page of notes (8.5" x 11", i.e., a standard letter size sheet of paper). The notes may be hand-written or typewritten; they may not be scanned or download from the INTERNET. You can have worked on developing notes with other students but you must have written or typed them yourself. You may use any calculator. You may not use a computer. All cell phones must be turned off. You may not place or receive calls, send or receive text messages, or access the Internet during this exam. You only get credit for correct answers. If a question requires more than one answer (e.g., part A and part B), you will get partial credit if you answer some, but not all, parts correctly. You are not required to show your calculations and will not get credit for showing work that results in an incorrect answer. I will distribute different versions of the exam. These may have questions in different order; answers in different order; and/or different input numbers (e.g., different interest rates) in otherwise similar questions. There are 12 questions on the exam. Each question is worth 10 points for a total possible 120 points. If a question has two parts (i.e., a & b) each part is worth 5 points unless noted otherwise. Please that some questions are more difficult than others and that the questions are not necessarily listed in the order of difficulty. Budget your time accordingly. To avoid errors due to rounding, do not round your answers from intermediate steps in the calculation. Only round your final answer (if necessary). Before completing your exam, be sure to check that you have transferred any answers written in this question packet to your answer sheet. Answers written in this packet but not entered on the answer sheet will not be counted. 1. You are interested in purchasing a new automobile that costs $26,175.00. The dealership offers you a special finance rate of 6% APR (i.e., 0.5 per month) for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer’s financing deal, then what will your monthly car payments be? (Round to the closest cent.) 2. If the risk-free interest rate is 4%, what is the present value of a risk-free stream of cash flows that pays $89.20 at the end of every year forever? (Round to the closest dollar.) Use the following table to answer Questions 3 and 4. Assume that cash flows for all three securities are risk-free. 3. If the risk-free rate of interest is 3.2%, then what is the value of security A? (Round to closest cent.) 4. If the value of security “C” is $161.00, then what must be the value of security “A”? (Round to closest cent.) 5. Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes exactly one year to manufacture $1,117.00. Once built, the machine will last for exactly 40 years (thus it creates exactly 40 “payments” of $1,117.00. The machine will take two years to build and cannot begin the process of manufacturing money until it is done being built. It will cost $23,500 (including the present value of any labor) to build and the entire $23,500 must be invested today. You buddy wants to know if he should invest the money to construct it. For the purposes of this hypothetical exam question, ignore taxes and counterfeiting laws. If the interest rate is 4.7%, what is the net present value of this investment opportunity? (Round to closest dollar.) 6. Your bank is offering you 7.2% EAR interest on a two-year deposit that compounds quarterly. Calculate the APR? (Round in percent to two decimal places.) 7. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no transfats. The firm expects that sales of the new pizza will be $50 million per year. While many of these sales will be to new customers, Pisa Pizza estimates the 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? (Round to closest million). b. Suppose that 2/3rds of the customers who will switch from Pisa Pizza’s original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. In this case, what level of incremental sales is associated with introducing the new pizza? (Round to closest million.) 8. Some young entrepreneurs have approached farmer Bill and asked if they can pay him to use his 50 acre wheat field for the Fantastic Fall Rock Festival next fall. Farmer Bill does not own the field. Farmer Bill has a long t