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FIN3101midterm2010a (2) - FIN3101 Mid-Term Exam October 2nd...

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FIN3101 Mid-Term Exam October 2 nd 2010 Answer ALL Questions. Each question is worth 1 mark. Good Luck! Maturity 1 2 3 Zero coupon bond prices $850 $750 $700 The above data depicts the prices of zero coupon bonds for various maturities. Given the above information, answer questions 1-3: 1. The 3 year spot rate is a. 17.65% b. 12.62% c. 15.47% d. 42.86% 2. The forward rate between year 1 and 3 is 3. The price of a bond with an annual coupon rate of 0.5% which matures in 3 years (and has a standard face value of $1000) is given by 4. Sandiya Inc has currently made a dividend payment of $3 per share. The market expects the company’s dividend to grow at 10% per year indefinitely. Sandiya’s cost of capital is 15%. Given this information what should be the current price of Sandiya’s stock? 5. Which of the following statements is false? a. Expected return should rise with volatility. b. Investors would not choose to hold a portfolio that is more volatile unless they expected to earn a higher return. c. Smaller stocks have lower volatility than larger stocks. d. The largest stocks are typically more volatile than a portfolio of large stocks.
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