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Unformatted text preview: Name __________________________________ Webct User ID __________________________________ University of Houston C. T. Bauer College of Business Principles of Financial Management Finance 3332 Summer, 2007 Exam 3 A To receive full credit, show all work—equations in variable form, equations with numbers plugged in—and clearly indicate your answer. Point values are in parentheses. 1. You are analyzing a stock with a beta of 2.0. The risk- free rate is 6 percent, and the market risk premium is 1 What is the stock’s equilibrium required rate of return? (6) 2. Referring to the information in #1, what is the expected return on the market? (2) 3. Given the following possible returns over the coming year for Driason, Inc., determine the stock’s expected re State Probabilit y Expected Return Rec e s sion 10%-30% Normal 50% 20% Boom 40% 40% 4. What is the probability of earning a return of less than 12 percent on a stock whose returns are normally distri with an expected return of 8 percent and a standard deviation of 25 percent? (8) 5. What is the standard deviation of returns for this stock given the following historical data if its expected return percent? (8) Year Observatio n Return 2006 1-20% 2005 2 10% 2004 3 30% 2003 4 8% 6. Based on a stock’s market price, you estimate a return of 15 percent. The stock has a beta of 1.6, and you ca6....
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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.
- Spring '08