Final Exam FINE2000 W2012_solutions - York University...

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York University
Schulich School of Business
Introduction to Corporate Finance FINE 2000
Final Exam: Solutions
Saturday, April 14, 2012
Instructions:
 There are 20 multiple choice questions, 4 problems and a formula sheet on the following
pages. Please examine your quiz booklet to ensure it is complete & answer all questions
on the following pages. This is a closed book test.
 All process work & steps must be shown and will be awarded part marks. No marks will
be awarded if only the answer is provided.
 Process includes either the calculator key strokes used or formulas and logic including
the correct values in the right places.
 Calculators must be set such that the rate of return is the periodic rate.
 Calculate using 6 significant figures for absolute numbers and 4 significant figures for
percentages. Round any dollar based answers to 2 decimal points.
 Calculators are permitted. Laptops, cell-phones, and other electronics are not
 Time allocation: 180 minutes. Mark allocation: Shown on exam.
permitted.
Print your name: ___________________________________
Sign your name: ___________________________________
Student Number: ___________________________________
Name of Instructor: ___________________________________
Section: ___________________________________
Good Luck!!!

Multiple Choice [20 questions: 30 points]
1. Stock A has 10 million shares issued and Stock B has 5 million shares issued. If they are
both trading today at $100 a share, what is their relative weighting in the market
portfolio?
2. All else equal, which of the following bonds would be likely to exhibit a greater degree of
interest-rate risk?
3. Should a project be accepted if it offers an annual after-tax cash flow of $1,250,000
indefinitely, costs $10 million, is riskier than the firm's average projects, and the firm's
WACC is 12.5%?
4. Given the accumulated evidence concerning the CAPM, which of the following portfolios
might be expected to plot above the security market line?
A) A portfolio of aggressive stocks.
B) A portfolio that includes borrowed funds.
C) A portfolio of smaller companies.
D) A portfolio split between Treasury bills and the market index.
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