Risk and Return Quick Quiz
1. Quick Quiz. Consider an asset with a beta of 1.2, a risk-free rate of 5%, and a market
return of 13%. What is the reward-to-risk ratio in equilibrium? What is the expected return
on the asset?
Answer. Since M = 1, the reward-

Problem Set
Risk-Return Tradeoff and CAPM
Question 1
Suppose you have access to the following historical information about annual returns
Year t
1
2
3
4
Firm A return
0.15
0.09
0.06
0.12
Firm B return
0.035
-0.15
0.05
-0.03
a. Compute estimated expected r

Return and Risk Exercises
Question 1. You believe that the future price of Prime Resources depends on whether
they find gold in the Yukon, and this will happen with 0.50 probability. If they strike gold,
Primes price one year from now will be $3; if they

Interest Rates
Problem Set
Question 1.
A $8,000 loan requires repayment of principal and all accumulated interest to be
made at the end of year 4. The loan has interest rate (APR) of 9% compounded quarterly. How
much needs to be repaid at the end of year

Introduction to Valuation
Problem Set
Question 1.
(a) An $8,000 loan calls for simple interest payments of 9 percent per year.
Repayment of principal and all accumulated interest is to be made at the end of year 4. What
amount needs to be repaid?
(b) Assu

Bond Valuation
Problem Set
Question 1.
Calculate the market price of an annual coupon bond having the following characteristics: face value of $1,000, matures in 2 years, coupon rate of 10 percent, and effective annual
yield of 12 percent.
Answer:
The tim

Introduction to Valuation
Problem Set
Question 1.
(a) An $8,000 loan calls for simple interest payments of 9 percent per year.
Repayment of principal and all accumulated interest is to be made at the end of year 4. What
amount needs to be repaid?
Answer:

Interest Rates
Problem Set
Question 1.
A $8,000 loan requires repayment of principal and all accumulated interest to be
made at the end of year 4. The loan has interest rate (APR) of 9% compounded quarterly. How
much needs to be repaid at the end of year

Discounted Cash Flow Valuation
Problem Set
Question 1.
Suppose you are looking at the following possible cash flows: Year 1 CF = $100;
Years 2 and 3 CFs = $200; Years 4 and 5 CFs = $300. The required discount rate is 7%.
What is the value of the cash flow

Stock Valuation
Problem Set
Question 1.
Suppose you bought one share of Pouce Coupe Resorts (PCR) one year ago for
$9. Today, you received a dividend payment of $1 and sold the share for $9.50. What was your
realized return on PCR over the last year?
Answ

Sample Midterm
Introduction to Finance
Name (please print):
(First Name)
(Last Name)
Signature:
Circle your section:
201(10am)
202(11:30am)
202(2:30pm)
id:
No clarication/interpretation questions shall be asked by the students during exam.
Please be sea

Problem Set
Investment Decision Rules, Capital Budgeting and Project Analysis
Question1
Replicate solutions posted for Exercises 1 - 4 in the Investment Decision Rules lecture notes.
Question 2
In Example 1 and the motivating example used for the topic of

Practice Midterm
Introduction to Finance
Name (please print):
Signature:
Session (205 or 206):
id:
Please be seated as far away from each other as possible. The room is large enough
so you do not have to sit right next to each other. I reserve the right

Practice Midterm
Introduction to Finance
Name (please print):
Signature:
Session (205 or 206):
id:
Please be seated as far away from each other as possible. The room is large enough
so you do not have to sit right next to each other. I reserve the right

Discounted Cash Flow Valuation
Problem Set
1
Multiple Cash Flows
Question 1. An investor deposits $300 today and will deposit $400 one year from today.
If the investor earns interest at 8% compounded yearly, how much will the investor have two
years from

Introduction to Valuation: Quick Quiz
QQ 1. Suppose you have $500 to invest and you believe that you can earn 8% per year
over the next 15 years.
(a) How much would you have at the end of 15 years?
Answer. F V = P V (1 + r)t = 500 (1 + 0.08)15 = 1586. 08

Discounted Cash Flow Valuation
Problem Set
1
Multiple Cash Flows
Question 1. An investor deposits $300 today and will deposit $400 one year from today.
If the investor earns interest at 8% compounded yearly, how much will the investor have two
years from

CMP COMM 298 Introduction To Finance
Review Worksheet
In answering all questions, dont forget to write out your formulas and timelines! Points are often
awarded or lost there dont lose freebies
Answers:
1. Suppose you deposit $15 in a savings account tod

Risk and Return Quick Quiz
1. Quick Quiz. Consider an asset with a beta of 1.2, a risk-free rate of 5%, and a market
return of 13%. What is the reward-to-risk ratio in equilibrium? What is the expected return
on the asset?
Answer. Since M = 1, the reward-

Beta and Security Market Line
Problem Set
Question 1.
The returns of shares A and B for the coming period are represented
by the following joint probability distribution:
Stock B
Share A
6% 10% 12%
8% 0.02 0.13 0.5
9% 0.05 0.01 0.04
10% 0.18 0.06 0.01
(a)

Finding the YTM for a coupon bond
Method 1
Note: choose YTM to make the value equal price of the bond. Click "What If" analysis in the "Data" Ribbon, and choose "Goal Seek".
Face value
1000
time to maturity
15
Payment frequency
1
Coupon rate
12.00%
Price

a
Sunk Costs:
cost of the building 6 years ago
Travel and other costs associated to travelling to XYZ several years ago
b years
Investment
Machine A
Machine B
Change in WC
Revenues
Q
P
P*Q
Costs
v
vQ
F
vQ + F
Depreciation
Machine A
Machine B
Working Capit

Q1
a
b
c
d
e
f
g
h
E(A )
E(B )
SD(A)
SD(B)
Corr(A, B)
.
10.5000%
-2.3750%
3.8730%
0.0015
9.1047% 0.00828958
0.10634554
0.000375
t
1
2
3
4
1
0.045
E(P )
SD(P )
~68%
0.52261875
4.0625%
5.1331%
0.0026349
Q2
Solution was described in the spreadsheet available

Capital Budgeting Tools Quick Quiz
1. Quick Quiz. Consider an investment that costs $100,000 and has a cash inflow of
$25,000 every year for 5 years. The required return is 9%, and required payback is 4 years.
a. What is the payback period? What is the di

Sample Midterm
Introduction to Finance
Name (please print):
(First Name)
(Last Name)
Signature:
Circle your section:
201(10am)
202(11:30am)
202(2:30pm)
id:
No clarication/interpretation questions shall be asked by the students during exam.
Please be sea