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ReviewSheet - Sample Problems for Final Exam BUAD 306,...

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Unformatted text preview: Sample Problems for Final Exam BUAD 306, Spring 2011 Introduction I strongly recommend that your review for the final include doing these problems. The questions are not in any particular order. Remember to review your homework problems in addition to these problems. Questions 1. If markets are at least semi-strong form efficient, and a company announces new, unexpected information regarding its future prospects¡namely, that profits will be much lower than previously expected¡what do you expect will happen in the stock market? a. The value of a share will decline over an extended period of time as investors begin to sell shares in the company. b. The value of a share will fall below what is considered appropriate because of the decreased demand for the shares, but eventually the price will rise to the correct level. c. The value of a share will drop immediately to a price that reflects the value of the new information. d. The value of a share will rise over a long period of time as investors sell the stock. e. The stock price will not change since this type of information has no impact in markets that are semi-strong form efficient. 2. You work in the press office of a large corporation. You find that you can consistently earn unusually large returns by buying and selling your company's stock in advance of releasing your firm's announcements. Which of the following describes this strategy (before you go to jail)? a. This is not be a violation of market efficiency b. This would be a violation of weak form efficiency c. This would be a violation of semi-strong form efficiency d. This would be a violation of strong form efficiency e. This would be a violation of all forms of market efficiency 3. Which of the following is generally regarded as a source of unsystematic risk a. Company labor strike b. Unanticipated change in inflation c. Anticipated change in inflation d. Interest rate increase e. None of these 4. Which of the following would cause the value of a put option to decrease? a. Increase in exercise price of the option b. Increase in the price of the stock c. Price on underlying asset becomes more volatile d. Increase in the time until the expiration date e. None of these 5. The CFO of Ballerina Industries is considering two mutually exclusive bond issues that will be used to finance a stock repurchase. Bank A would be able to issue $100 million (market value) worth of Ballerina bonds at a 7% coupon rate whereas Bank B could issue $100 million (market value) worth in Ballerina bonds at a 4% coupon rate. Assuming that M&M Proposition I with without taxes holds, which option would maximize Ballerina's firm value? a. Bank A b. Bank B c. Neither option will have any effect on firm value d. Both options will have the same positive effect on firm value e. None of the above 6. Which of the following is not possible?...
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This note was uploaded on 09/11/2011 for the course BUAD 306 taught by Professor Selvili during the Spring '07 term at USC.

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ReviewSheet - Sample Problems for Final Exam BUAD 306,...

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