This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: MIT Sloan School of Management J. Wang 15.407 E52-456 Fall 2002 Solution to Midterm Exam October 29, 2002 1. (a) False . The shareholders do not need to agree with the value of the firms assets for the market value of the firm to be maximized. The shareholders can reconcile their differences in valuation by trading with the market. (b) False . They should use the discount rate corresponding to the riskiness of the project. (c) False . Price of a Treasury bond is determined by its future cash flow and spot rates. However, given enough number and variety of other Treasuries, you can use their yield-to-maturity to derive the spot rates. (d) False . The market price of a share of stock equals the discounted value of the stream of future dividends per share. 2. Assume the savings occur in the beginning of year 1, 2 and 3 and the real estate will be bought in the end of year 3. Let A be the amount of the first deposit, the present value of savings is: PV saving = A + 1 . 1 1 . 04 A + ( 1 . 1 1 . 04 ) 2 A = 3 . 1764 A The present value of the real estate is:...
View Full Document
This note was uploaded on 01/19/2011 for the course 15 15.407 taught by Professor Wang during the Fall '03 term at MIT.
- Fall '03