1. The Slice & Dice Investment Co. needs some help understanding the intricacies of
bond pricing. It has observed the following prices for zero coupon bonds that have no
risk of default:
Maturity
1 year
2 years
3 years
Price per
$1 Face Value
0.97
0.90
0.

14.
Solution:
Using the Fisher Equation to find the real YTM, 1+6.75% = (1+Real YTM) (1+ 2.5%), so the
Real YTM = 4.146%.
Current price of the bond = 60/1.0675 + 1060/1.06752=986.3927
If you have an equivalent real return bond, the price (present value) s

Note: The sample examination questions JUST show the level of difficulties
and the format of questions that you will see in the mid-term and the final.
You CANNOT assume that the questions in the mid-term and the final
exams will be very similar (in terms

CHAPTER5
19.
Solution:
As the exact amount of interest owing each year will be paid, there is no
compounding. The amount of each annual payment will be P x k = $2,500 x 6% =
$150. Unfortunately, these payments never reduce the principal owing, so the loan

Chapter 2 (Booth & Cleary)
20. Solution:
When operating as a sole proprietorship, all of the assets of the company belong to the
owner; the companys debts are also the owners debts. Janice will have to pay her
friends and family (the debt-holders) the ful

CHAPTER 8
17.
Solution:
a. i) Five-day cumulative return
The 5 day cumulative return is the value on Friday afternoon of $1 invested on Monday morning.
ABC: $1(1.35)(1.04)(0.82)(-0.02)(1.05)= -$0.024
So if $1 reduces to -$0.024 in 5 days the cumulative re

UNIVERSITY OF TORONTO
at Scarborough
MANAGEMENT
MGTB09 (Principles of Finance)
A Previous Final Exam
Time Allowed: 2 hours
Number of pages including the title page and the table:
10
Items Allowed: Calculator and one 8.5 * 11 inches (double sided) crib she

Question 1.
WeTechies Limited earnings and dividends are expected to grow at a rate of 15% per
year during the next two years, at 10% per year in the 3rd and 4th years, no growth in 5th
year and then decline at the rate of 2% per year forever. Currently W

Q1[ExanteRiskandReturn]
There are three securities in the market. The following chat shows their possible payoffs:
State
1
2
3
4
Probability of
Outcome
10%
40%
40%
10%
Return on
Security 1
0.25
0.20
0.15
0.10
Return on
Security 2
0.25
0.15
0.20
0.10
Retur

Q1[ExanteRiskandReturn]
There are three securities in the market. The following chat shows their possible payoffs:
State
1
2
3
4
Probability of
Outcome
10%
40%
40%
10%
Return on
Security 1
0.25
0.20
0.15
0.10
Return on
Security 2
0.25
0.15
0.20
0.10
Retur