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exam2b.ch6ch7ch8

exam2b.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 2B 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. The current rate of return on a one-year risk-free security is 8 percent, and the rate on an equivalent two-year security is 10 percent. Based on the Expectations Hypothesis, what is the expected one-year rate, one year from now? (6) 2. You are analyzing a stock with a beta of 1.0. The risk-free rate is 2%, and the market risk premium is 6%. What is the stock’s equilibrium required rate of return? (6) 3. From the information from the previous question, what is the expected return on the market? (2) 4. Joni Corporation’s common stock is expected to pay a dividend of \$0.75 per share next year. What is the value per share of the firm’s common stock if earnings and dividends are expected to grow at a rate of 7 percent for the foreseeable future, and investors require a 12 percent return? (6) 5. Circle the correct response. (4)

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exam2b.ch6ch7ch8 - Name PeopleSoft University of Houston C...

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