Sample Final - Name Econ 233 Sample Final Exam To get full...

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Name: ___________________ Econ 233 Sample Final Exam To get full credit, please show all calculations 1. (10 points) Today, Trident Inc. reported annual earnings per share (EPS) of $4 per share, and paid out annual dividends of $1 per share. The yields on 1-year Treasury bills and 10-year Treasury notes are 1% and 4%, respectively. You also have access to the following data: Regression results for Trident’s common stock Dependent variable: Monthly excess return (in decimals) Coefficient t-statistic Intercept 0.2 1.2 Excess return on S&P 500 1.3 5.6 No of observations 60 a. (2 points) What is the expected return on Trident stock according to the CAPM, using the historical equity risk premium? b. (4 points) If you expect EPS to grow at 5% for 3 years, and then settle down at 2% thereafter, and a constant plowback ratio, what is the intrinsic value? c. (2 points) Where do you expect the stock price to be 2 years from now in the absence of any mispricing and if all your estimates are correct? d. (2 points) If the stock was trading at its intrinsic value and you could borrow at the risk- free rate, what should be the futures price of a contract on Trident Inc. stock maturing in 1 year? 2. (10 points) Alternatively, you try to value Trident Inc. given the following information. It is end of 2009. All numbers are in $1,000. EBIT was $1,500 in 2009, and expected to grow at 6% for the next 4 years.
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