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exam2c.ch6ch7ch8 - Name PeopleSoft University of Houston C...

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Name __________________________________ PeopleSoft # __________________________________ University of Houston C. T. Bauer College of Business Finance 3332 Principles of Financial Management Spring, 2010 Exam 2C Point values are in parentheses. To receive full credit: Show all work—equations in variable form & equations with numbers plugged in 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 return greater than 20 percent on a stock whose returns are normally distributed with an expected return of 8 percent and a standard deviation of 9.6 percent? (8) 2. A common stock is expected to pay a dividend of $0.80 next year. After that, earnings and dividends are expected to grow at a rate of 12 percent for one year, then slow to a constant rate of 8 percent thereafter. What is the value of this stock if the appropriate required rate of return is 12 percent? (10) Use the following information for problems 3– 5. Stock Expected Return Beta Variance Covariance (σ i,j ) B 12% 1.1 900% 2 σ B,C = 1080% 2 C 14% 1.2 1600% 2 3. Calculate the expected return of a portfolio consisting of 30 percent of the funds invested in stock B and 70 percent in stock C. (4) 4. Calculate the
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