FinalExamXX - Name Webct User ID UH Id Number University of...

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Name __________________________ Webct User ID __________________________ UH Id Number __________________________ University of Houston Bauer College of Business Finance 3332 Principles of Financial Management Fall, 2007 Final Exam XX Leave exam stapled together…Do not unstaple. Final answers should be rounded to the same number of decimal places as choices. 1 Agency problems arise due to the separation of ownership and control and can arise between stockholders and managers or between stockholders and bondholders. a. True b. False 2. The appropriate goal of a financial manager is to maximize stockholder wealth, maximize the price per share of the firm’s common stock, or to maximize the firm’s earnings per share. a. True b. False 3. Carolyn currently has $300,000 in her retirement account, and she wants to retire in 9 years. When she retires, she wants to be able to withdraw $70,000 per year for 30 years. How much must she save at the end of each year in order to meet her retirement objective if her account is expected to earn 6 percent per year? a. $182,747 b. $200,000 c. $156,640 d. $ 39,743 e. $ 57,743 4. Marge is buying a new car for $35,000. She will put $5000 down and finance the remainder. How much will her monthly payments be if she finances for 3 years at an annual rate of 9% and she makes payments at the end of each month? a. $2827 b. $127 c. $236 d. $954 e. $940 5. I won the lottery! If I want to maximize my wealth, which alternative will I prefer if my investments earn 8 percent per year? (Ignore amounts less than one dollar.) 1) $20 million to be paid in 20 equal beginning of year installments of $1 million per year 2) An immediate lump sum payment of $10,800,000. a. I’m indifferent between the two b. the twenty payments of $1 million per year c. the lump sum d. not enough information to determine
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6. Due to the inverse relationship between interest rates and value, when the yield to maturity of a bond that is selling at par decreases, the bond will sell at a premium. a. True b. False 7. What is the standard deviation of returns for a stock given the following data? State Probability Expected Return Good 60% 20% Poor 40% -10% a. 14.7 % b. 2.5 % c. 5.0 % d. 216.0 % e. None of the above 8. Standard deviation of returns measures total risk, and it consists of market or systematic risk as measured by beta and of firm specific risk which can be diversified away. a. True b. False Use the following information for questions 9 – 10. Company Beta Expected Return Variance Covariance Lacet 2.0 0.20 0.04 0.016 Mayset 1.2 0.12 0.16 9. Calculate the standard deviation of a portfolio consisting of 40 percent Lacet and 60 percent Mayset. a. 26.8 % b. 7.2 % c. 25.6 % d. 6.6% e. None of the above 10. Calculate the expected return of a portfolio consisting of 40 percent Lacet and 60 percent Mayset. a. 16.8%
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This note was uploaded on 02/13/2011 for the course FINA 3332 taught by Professor Darlachisholm during the Spring '08 term at University of Houston.

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FinalExamXX - Name Webct User ID UH Id Number University of...

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