summer 08 - Family name, comma, personal names:_ Your...

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TB ACT245H1F McD v66 Sum08 TT2 PRIVACY CODE A Page 1 Family name, comma, personal names:_______________________________ Your student ID:_________________________________________________ UNIVERSITY OF TORONTO Faculty of Arts and Science ACT245H1F Sum 08 TEST 2 Duration – 50 Minutes Aids: All calculators allowed Instructor: Keith Sharp PhD FSA CFA NOTES: 1. Please identifying your Privacy Code in the page footer (small letters at bottom of this page, A, B, C or D) and blob it as the answer for question 11. 2. Any scrap paper is to be handed in with this book. It’s OK to write on book. 3. This is a closed book exam. 4. Multiple choice: only your letter answer mark sense sheet will be graded. 5. Each question: 10 points correct, two if blank, zero points if wrong 6. So expectation if you guess is the same as leaving a blank. 7. Make sure you’ve indicated your letter answers on the mark sense sheet before time’s up 8. Please stay in your seats and don’t talk till all question papers and mark sense sheets have been collected. 9. Photo ID on desk during exam. 10. Name and student ID on this question paper and on mark sense sheet please. 11. Good luck!
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UNIVERSITY OF TORONTO ACT245H1S SUM08 TERM TEST 2 TB ACT245H1F McD v66 Sum08 TT2 PRIVACY CODE A Page 2 1. (000000 (Class July 16, 2008) Just before a 20% stock price drop, interest rates are 5% per annum effective and dividend growth (starting 12 months in the future) is assumed to be at a rate 3% per annum. Just after the drop, the assumed interest rate is unchanged. There is no change in the assumed time 1 dividends, Calculate the new assumed dividend growth rate, effective per annum. (A) Less than 2.400% (B) 2.400% but less than 2.600% (C) 2.600% but less than 2.800% (D) 2.800% but less than 3.000% (E) 3.000% or m0re (B): Solution: 0.80 = P(New)/P(old) = [Div1/(r-g new ) ] / [Div1/(r-g new )] = (0.05-0.03)/(0.05- g new ) g new = 0.025
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UNIVERSITY OF TORONTO ACT245H1S SUM08 TERM TEST 2 TB ACT245H1F McD v66 Sum08 TT2 PRIVACY CODE A Page 3 2. (000000) (Assignment Jul 21, 2008) Suppose you short-sell 300 shares of XYZ stock at $30.18 with a commission charge of 0.5%. There is a zero margin requirement. Supposing you pay commission charges for purchasing the security to cover the short-sale, how much profit have you made if you close the short-sale at a price of $29.87? Risk-free interest rates are zero. (A) Less than $3.600 (B) $3.600 but less than $3.700 (C) $3.700 but less than $3.800 (D) $3.800 but less than $3.900 (E) $3.900 or more (A)Solution Profit = 300*[(30.18-29.87) – 0.005*30.18 – 0.005*29.87] = $2.925
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UNIVERSITY OF TORONTO ACT245H1S SUM08 TERM TEST 2 TB ACT245H1F McD v66 Sum08 TT2 PRIVACY CODE A Page 4 3. (000000 Today is January 1, 2009. Market risk-free interest rates are 4.8% per annum
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summer 08 - Family name, comma, personal names:_ Your...

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