University of Alabama
FI 414 (514)
Investments
Dr. Shawn Mobbs
Sample Test 2
Name:_ ID#_
Print
Part A: Problem solving (4 problems, 80 points)
Instructions: Answer all parts of all questions and show all work.
1.
(20 points) A pension plan is obligated to
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University of Alabama
F1414 (514) Dr. Shawn Mobbs
Investments '
Test 2
Name: ID#
Print
Part A: Problem solving (4 problems, 80 points)
Instructions: Answer all parts of all questions and show all work.
1. (20 points) A pension plan is obligated to make di
28
Toronto Dominion Bank
Canadian Pacific
.30
R2
.25
1.04
Beta
.82
.20
s(Beta)
.18
e. If the market provides a zero return next year, what return do you expect from Toronto Dominion?
d. If the CAPM is correct, what is the expected return on Toronto Domini
University of Alabama
FI 414 (514)
Investments
Dr. Shawn Mobbs
Sample Test 1
Name:_ ID#_
Print
Part A: Problem solving (4 problems, 80 points)
Instructions: Answer all parts of all questions and show all work.
1.
(30 points) Suppose there are three possib
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Chapter 11 - Efficient Markets and Behavioral Finance
CHAPTER 11
Efficient Markets and Behavioral Finance
Answers to Problem Sets
1.
2.
3.
c
Weak, semistrong, strong, strong, weak.
a.
False
b.
False
c.
True
d.
False
e.
False
f.
True
a.
False - In what kin
CHAPTER 6
Efficient Diversification
Overview
Analyzing portfolios of multiple risky assets
Efficient Portfolios
Maximum return for minimum level of risk
Single factor index model to predict stock returns based
on
Firm specific risk
Market risk
Valu
Chapter 08 - Portfolio Theory and the Capital Asset Pricing Model
CHAPTER 8
Portfolio Theory and the Capital Asset Pricing Model
Answers to Problem Sets
a.
7%
b.
27% with perfect positive correlation; 1% with perfect negative correlation;
19.1% with no co
CHAPTER 13
Does Debt Policy Matter?
Answers to Problem Sets
1.
Note the market value of Copperhead is far in excess of its book value:
Ms. Kraft owns .625% of the firm, which proposes to increase common
stock to $17 million and cut short-term debt. Ms. Kr
C4
0
+1,000
+1,000
C5
0
+1,000
+1,000
Why does the NPV method make sense?
a. If the opportunity cost of capital is 10%, which projects have a positive NPV?
Ex. 1. Consider the following projects:
Cash Flows ($)
C1
C2
C3
Project
C0
A
-1,000
+1,000
0
0
B
-2
Chapter 09 - Risk and the Cost of Capital
CHAPTER 9
Risk and the Cost of Capital
Answers to Problem Sets
1.
Overestimate
2.
Company cost of capital = 10 x .4 + (10 + .5 x 8) x .6 = 12.4%
After-tax WACC = (1 - .35) x 10 x .4 + (10 + .5 x 8) x .6 = 11.0%
3.
Chapter 12 - Payout Policy
CHAPTER 12
Payout Policy
Answers to Problem Sets
1.
a.
A1, B5; A2, B4; A3, B3; A4, B1; A5, B2
b.
On August 12, the ex-dividend date
c.
(.35 X 4)/52 = .027, or 2.7%
d.
(.35 X 4)/4.56 =.31, or 3.1%
e.
The price would fall to 52/1.
Chapter 14 - How Much Should a Corporation Borrow?
CHAPTER 14
How Much Should a Corporation Borrow?
Answers to Problem Sets
1.
The calculation assumes that the tax rate is fixed, that debt is fixed and
perpetual, and that investors personal tax rates on i
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[AUTOMOBILE
MANUFACTURING
INDUSTRY ANALYSIS] Auto Manufacturing Industry
Overview.
History.
CurrentAssessment.
Future Projections.
Tesla Motors Inc.
Overview.
History.
Qualitative Assessment.
Quantitative Assessment.
Intrinsic Value.
Ford Motor C
Chapter 04 - The Value of Common Stocks
CHAPTER 4
The Value of Common Stocks
Answers to Problem Sets
1.
a.
True
b.
True
2.
Investors who buy stocks may get their return from capital gains as well as
dividends. But the future stock price always depends on
Chapter 07 - Introduction to Risk and Return
CHAPTER 7
Introduction to Risk and Return
Answers to Problem Sets
1.
Expected payoff is $100 and expected return is zero. Variance is 20,000 (%
squared) and standard deviation is 141%.
2.
a.
Standard deviation
Chapter 05 - Net Present Value and Other Investment Criteria
CHAPTER 5
Net Present Value and Other Investment Criteria
Answers to Problem Sets
1.
a.
A = 3 years, B = 2 years, C = 3 years
b.
B
c.
A, B, and C
d.
B and C (NPVB = $3,378; NPVC = $2,405)
e.
Tru
Chapter 06 - Making Investment Decisions with the Net Present Value Rule
CHAPTER 6
Making Investment Decisions with
The Net Present Value Rule
Answers to Problem Sets
1.
a, b, d, g, h.
2.
Real cash flow = 100,000/1.04 = $96,154; real discount rate = 1.08/
Chapter 02 - How to Calculate Present Values
CHAPTER 2
How to Calculate Present Values
Answers to Problem Sets
1. If the discount factor is .507, then .507*1.126 = $1
2. 125/139 = .899
3.
PV = 374/(1.09)9 = 172.20
4.
PV = 432/1.15 + 137/(1.152) + 797/(1.1
Chapter 03 - Valuing Bonds
CHAPTER 3
Valuing Bonds
Answers to Problem Sets
Does not change
Price falls
c.
2.
a.
b.
1.
Yield rises.
a.
If the coupon rate is higher than the yield, then investors must be
expecting a decline in the capital value of the bond
tax rate is 25% and the discount rate is 8%, what is the break-even point for the project?
variable cost per toy is $5, and the firm incurs fixed costs of $350,000 each year. If the corporate
depreciated by the straight line method over its 5-year economi
real discount rate =
1 .15
1 .045
1 .10
1+ nominal discount rate
1+ inflation rate
1
Ex. You invest in a project that will produce real cash flows of -$100 in year zero and then $35,
$50, and $30 in the three respective years. If the nominal discount rate
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