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Unformatted text preview: UNIVERSITY OF TORONTO Joseph L. Rotman School of Management Feb. 24, 2009 Buti/Farooqi RSM333 MID-TERM EXAMINATION Florence/Konukoglu DURATION - 2 hours Aid Allowed: Silent electronic calculator and one 1-sided 8 1 2 11 crib sheet Name: Student Number: Circle the section that you are registered in: Buti (Tue. 9a.m.11a.m.) Buti (Tue. 11a.m.1p.m.) Buti (Tue. 7p.m.9p.m.) Farooqi (Mon. 11a.m.1p.m.) Farooqi (Mon. 1p.m.3p.m.) Farooqi (Wed. 5p.m.7p.m.) Florence (Fri. 10a.m.12p.m.) Florence (Fri. 12p.m.2p.m.) Konukoglu Instructions 1. Write all your answers on the examination paper. 2. Answer five out of six questions. Each question is worth 20 marks. Do not answer all six questions! In the table below, cross out the question that you choose not to answer. Question Marks 1 2 3 4 5 6 Total 1 1. UNIspa is considering the following three projects: Project C CF i im A $10,000 $1,200 0.55 0.065 B $8,000 $1,600 0.175 1 C $8,000 $1,600 0.25 0.2 C is the initial cost, CF is the expected annual perpetual cash flow of the project, i is the standard deviation and im the correlation coefficient with the market of the project. Assume that expected return on a riskless security and the market portfolio are 10% and 14% respectively. The standard deviation of the return on the market is 5%. (a) Compute the internal rate of return of the three projects. (3 points) (b) Find the systematic risk ( i ) of each project. (3 points) (c) Find the security market line (SML) and compute the equilibrium expected returns of the above projects. Which projects should be accepted? (6 points) (d) Graph the SML and plot the ( IRR , ) combinations of the three projects in the graph. (4 points) (e) Assume that the weighted average cost of capital for the firm is 15%, and that the...
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This note was uploaded on 04/23/2011 for the course RSM 333 taught by Professor Sabrinabutti during the Spring '11 term at University of Toronto- Toronto.
- Spring '11