UB MGF 401 - MGF301_Test_2_-_Fall_2008_Version_II (6 pages)

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MGF301_Test_2_-_Fall_2008_Version_II



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MGF301_Test_2_-_Fall_2008_Version_II

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Pages:
6
School:
University at Buffalo, The State University of New York
Course:
Mgf 401 - Financial Institutions

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Name Student Number TEST 2 MGF 301 Corporation Finance Fall 2008 Please sign name in box Please tear off the answer sheet and answer all of the following questions on the answer sheet Note Total Points 100 Multiple Choice 4 points each unless otherwise indicated 1 Stocks A B C have the following historical standard deviations A 25 B 35 C 20 In 2007 the stocks had the following returns rA 12 rB 05 rC 15 Which of the stocks had the highest E r in the beginning of 2007 a B b C c A d more information is required to answer this question 2 ABC stock sells today for 20 You expect that one year from now one of three outcomes will occur with the following probabilities and prices there is a 20 chance P 10 a 40 chance P 20 and a 40 chance P 30 What is the expected return on the stock over the next year if you invest today Show your work 8 points 3 If markets follow the semi strong form of efficient market theory which is true a as long as there is a quick initial movement in price there is no violation of the theory if the price returns to where it started by the end of the first trading day b the price of a stock will not change unless new information is announced c if stock prices are slow to react to the announcement of information the theory is violated d all of the above are true 4 The cash flows for a project are as follows initial cost of 1 000 000 C1 200 000 C2 500 000 C3 600 000 C4 2 000 000 C5 10 000 000 If the company uses the payback method with a three year payback which of the following is true a The company will reject the project under the payback method even though it most likely has a positive NPV b The company should accept the project because it pays back within 3 years c The company cannot calculate the payback period in this case d None of the above is true Name Student Number 5 7 You have purchased a portfolio of equal investments in 4 stocks X Y W Z that have the following s W 2 X 1 5 Y 1 Z 5 5 Calculate the portfolio Show your calculation 6 points 6



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