exam2c.ch6ch7ch8 (1)

exam2c.ch6ch7ch8 (1) - Name Webct User ID University of...

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Name __________________________________ Webct User ID __________________________________ University of Houston C. T. Bauer College of Business Finance 3332 Principles of Financial Management Fall, 2007 Exam 2C To receive full credit, show all work—equations in variable form, equations with numbers plugged in—and clearly indicate your answer. Financial functions may be used only for finding annuity factors, and all inputs must be shown. Use the following information for questions 1 – 3. Compan y Beta Expected Return Standard Deviation Correlation Coefficient B 1.8 14% 60% 0.6 D 1.3 12% 30% 1. Calculate the  expected return  of a portfolio consisting of 60 percent Stock B and 40 percent Stock D. 2. Calculate the  standard deviation  of a portfolio consisting of 60 percent Stock B and 40 percent Stock D. 3. What is the  covariance  of returns between Stocks B and D? 4. What is the value of a $1000 par bond paying a 6 percent coupon and maturing in 14 years to an investor who  requires an 8 percent return? b) Circle  the term that correctly completes the following statement: The above bond is selling at: a discount par a premium.  5. What is the market price of one of Landrow Corporation’s $1000 par, zero coupon bonds which matures in 9 years and  has a yield to maturity of 11 percent? 6. Determine the value of a share of $4.00 cumulative preferred stock, no par, to an investor who requires a 12 percent  return. 7. You calculate from the security market line an equilibrium return on a stock to be 8 percent. Based on the stock’s  market price, you estimate a return of 10 percent. Determine whether the stock is over, under, or correctly valued, and  draw a correctly labeled graph to illustrate.
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8. What is the value of a common stock whose appropriate required rate of return is 14 percent? The stock’s earnings and 
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exam2c.ch6ch7ch8 (1) - Name Webct User ID University of...

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