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University of Houston
C. T. Bauer College of Business
Finance 3332
Principles of Financial Management
Spring, 2010
Exam 2D
Point values are in parentheses.
To receive full credit:
•
•
Clearly indicate your answer
•
Financial functions may be used, but all inputs must be clearly shown
•
Carry all decimals, rounding only final answer
•
Final answer decimal places should be rounded to four places (two in percent form)
•
Currency answers rounded to the nearest cent, where applicable
•
Include applicable units on answers
1. What is the probability of earning a positive return on a stock whose returns are normally distributed
with an expected return of 12 percent and a standard deviation of 15 percent? (8)
2. Preferred stock of Esme Company pays a dividend of $5 per year, has a $100 par value, is callable in 5
years at a call price of $102, and is selling in the market for $79.01. What is the preferred stock’s yield to
call?
(8)
3. What is the market price of a three percent coupon, $1000 par bond, which matures in 30 years, if the
bond’s yield to maturity is four percent? Assume annual interest payments (8)
Use the following information for problems 4 – 6.
Stock
Expected Return
Beta
Std. Dev.
Correlation (ρ
i,j
)
C
0.14
1.2
0.40
ρ
C,D
= 0.4
D
0.10
0.8
0.50
4. Calculate the
beta
of a portfolio consisting of 40 percent of the funds invested in stock C and 60
percent in stock D. (4)
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 Spring '08
 DARLACHISHOLM
 Finance

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