322midterms04 - Name SID HADM 322 MIDTERM SPRING 2004 Hello...

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Name: SID: HA DM 322 M IDTERM S PRING 2004: M ARCH 18, 2004 Hello everybody. Midterm time. The class so far started with a discussion of financial institutions and markets, their roles and characteristics. We talked first about bonds since they were the least risky (least information asymmetry). Soon we will be knee deep in equities and derivatives. With bonds, we talked first about valuation, then about risk, and then about the qualitative parts of the market. We have and shall do the same with equity. We talked about valuation in a perpetuity model and have begun to understand risk. We will soon talk very specifically about the qualitative/trading parts of the market. Derivatives are also soon to come, but first, this midterm to check our progress. 1. You will have exactly 3 hours for this exam. Please take care to use your time wisely as some questions are lengthier than others. You will be asked for short answer responses— be concise . Use of bullet points will suffice; you need not present answers in a full essay format. In most cases, 2 or 3 sentences will suffice. Any failure to turn in your response IMMEDIATELY when instructed to at the conclusion of the exam will result in a PENALTY. 2. The exam has 8 sections. All Sections except the Bonus are worth the same amount: 40 pts each. Bonus is worth 30. 3. Please make all responses in your whitebooks; turn in your whitebook and your 8.5x11.5 crib sheet when you have completed. Make sure your name is on everything you turn in. You may keep the test questions. Only responses in your whitebooks will be considered . 4. One-side of an 8.5x11.5 sheet of paper is all the outside help you will be afforded. You must hand in this crib sheet with your exam. The use of spreadsheet applications, additional outside assistance or materials of any kind, including that of another student, is strictly prohibited and will be dealt with as a violation of the Code of Academic Integrity. Penalties may include failure in this class and expulsion. Your participation in this exercise and any grade granted for it presupposes and is conditional on acceptance of the aforementioned conditions.
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P ART I: G ENERAL K NOWLEDGE S ECTION [8 P TS E A /40 T OTAL ] Warm up. Be concise. 1. What role do financial institutions play in the market? Give at least two examples of roles they play/benefits they generate. 2. Name the three assumptions that are necessary for value maximization on price to be socially optimal and give one example of a violation of each. 3. Modified duration is an imperfect estimate of interest rate sensitivity. Explain why. (Hint: the aid of a graph or diagram may help.) 4. Give two good, distinct reasons to invest. 5.
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322midterms04 - Name SID HADM 322 MIDTERM SPRING 2004 Hello...

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