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FIN 360
Quiz #5
Name: _Jeremy Pflug
_____________________
1. Based on the following information, calculate the expected rate of return on a real estate mutual
fund.
State of Economy
Probability of State of Economy
Mutual Fund’s Rate of Return If State Occurs
Recession
0.2
7%
Normal
0.55
13%
Boom
0.25
30%
Expected rate of return =
0.1325
2. Using the expectations hypothesis for the term structure of interest rates, what is the expected yield
for securities with maturity of two years?
If the expected yield for securities with maturity of three
years is 7.8%, what is the expected yield on 1year Tbill at beginning of year 3?
Current yield on 1year Tbill at beginning of year 1
7.2%
Expected yield on 1year Tbill at beginning of year 2
7.8%
Expected yield on 1year Tbill at beginning of year 3
?
Expected yield for 3
rd
year =
8.4%
3. Christensen & Assoc. is developing an asset financing plan.
Christensen has $500,000 in current
assets, of which 15% are permanent, and $700,000 in fixed assets.
The current longterm rate is 11%,
and the current shortterm rate is 8.5%. Christensen's tax rate is 40%.
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 Spring '11
 Dr.Jones

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