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Unformatted text preview: 1 PID#: N AME : U NIVERSITY OF N ORTH C AROLINA A T C HAPEL H ILL K ENANF LAGLER B USINESS S CHOOL B USI 408: C ORPORATE F INANCE M IDTERM E XAM #2 (11 pages) P ROF . A RZU O ZOGUZ F ALL 2008 ¾ Put your PID number on top of each page and your name on this sheet. ¾ The Honor System is in effect. After you have finished, sign the pledge on this sheet. ¾ SHOW ALL WORK and clearly mark answers. When appropriate, use a timeline to ensure maximum partial credit in the event of an error. ¾ This exam is CLOSED BOOK, and CLOSED NOTES. You may only use the formula sheet attached to this exam; any other formula sheet is not allowed. ¾ Make, but state clearly, all the assumptions that you feel are necessary to answer any particular question. ¾ You have 1 hour and 15 minutes to complete the exam. ¾ The maximum score is 100 points. Bonus Question (4 points): On a scale from 1(easy) to 5(difficult), how difficult did you find this exam? I have neither given nor received any aid on this examination.________________ Part 1 Part 2 Question 1 Question 2 Question 3 Bonus TOTAL 2 HELPFUL FORMULAS ( ) ( ) ( ) ( ) ( ) ( ) [ ] ( ) ( ) ( ) ( ) [ ] ( ) ( ) ( ) ( ) m m i i N i N j j i j i P B Bi A Ai m i i B A A Ai m i i A A Y X T ann T ann R R R R R R R E R R E R p R R R E R p R Y X Y X corr g r g g r C PV r r C PV var , cov , cov var ) , cov( var , cov , investment on return rate retention 1 1 1 1 1 1 1 1 1 2 1 2 = = − − = − = = = × = ⎥ ⎥ ⎦ ⎤ ⎢ ⎢ ⎣ ⎡ ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ + + − − = ⎥ ⎦ ⎤ ⎢ ⎣ ⎡ + − = ∑∑ ∑ ∑ = = = = β ω ω σ σ σ 3 Part 1: Multiple Choice Questions (4 points per question for a total of 36 points) 1. A risky security cannot have an expected return that is less than the riskfree rate because no riskaverse investor would be willing to hold this asset in equilibrium. a. True b. False 2. Security X has a standard deviation of returns of 35 percent and a beta of 1.45. Security Y has a standard deviation of returns of 28 percent and a beta of 1.06. Security Z has a standard deviation of returns of 44 percent and a beta of 1.22. Given this information, which one of the following statements is correct? a. Security Z has the greatest total risk because it has the largest standard deviation. b. Security X has the greatest total risk because it has the largest beta....
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 Fall '08
 Croce
 Corporate Finance, Net Present Value, Internal rate of return, analyst, perpetual cash inflow

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