FIN400
FINAL EXAM

1. You have a portfolio with a beta of 3.1. What will be the new portfolio beta if you keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 4.5?

Ans – 3.31

2. PNB Industries has 20 million shares of common stock outstanding with a market price of $18.00 per share. The company also has outstanding preferred stock with a market value of 50 million, and $500,000 bonds outstanding, each with face value $1,000 and selling at 97% of par value. The cost of equity is 15%, the cost of preferred is 12% and the cost of debt is 8.50%. If PNB’s tax rate is 40%, what is the WACC?

Ans – 9.47%

3. A 2 – year Treasury security currently earns 5.13%. Over the next 2 years, the real interest rate is expected to be 2.15% per year and the inflation premium is expected to be 1.75% per year. Calculate the maturity risk premium on the 2 year Treasury Security.

Ans – 1.23%

4. Which of the following statements is correct?

Ans – If the market is strong form efficient it must also be weak form efficient and semi strong efficient.

5. Netflicks, Inc. has a beta of 3.61. If the market return is expected to be 13.2 percent and the risk free rate is 7%, what is Netflick’s risk premium?

Ans – 22.38%

6. Which of the following is incorrect?

Ans – It is possible to combine assets that all move in the exact same fashion over time and gain the benefits of diversification.

7. Financial analysts forecast ABC Inc. growth for the future to be 12%. ABC’s recent dividend was $1.60. What is the value of ABC stock when the required return is 15%?

Ans - $59.73

8. Which of the following is not correct with respect to derivative securities?

Ans – All of these are correct statements about derivatives.
9. A firm reported a profit margin of 8.5%, total asset turnover of 0.85 times, debt to equity ratio of 0.90