final exam q6

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Brock University *

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FNCE 3P93

Subject

Finance

Date

Jan 9, 2024

Type

pdf

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4

Uploaded by ConstableWaterBuffaloMaster1287

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1. (2 marks) The present value of the following cash flow stream is $5979 when discounted at 10% annually. What is the value of the missing (t = 2) cash flow? A. $2,201 B. $2,664 C. $3,000 D. $3,506 E. $4,237 2. (2 marks) You are evaluating two annuities. They are identical in every way, except that one is an ordinary annuity and the other is an annuity due. Which of the following is false? A. The ordinary annuity will have a lower present value than the annuity due. B. The ordinary annuity will have a lower future value than the annuity due. C. The annuity due must have the same present value as the ordinary annuity due. D. The two annuities differ in present value by the amount (1 + R). E. The ordinary annuity and the annuity due have the same number of payments over time. 3. (2 marks) You invest 35 percent of your money in Stock A with a beta of 1.2, 35 percent of your money is Stock B with a beta of 1.1, and the remainder in the risk-free asset. What is the beta of your portfolio? A. 0.66 B. 0.81 C. 1.03 D. 1.14 E. 1.29 4. (2 marks) A firm is considering a project that will produce perpetual cash flows of $25,000 per year beginning next year (constant annuity). The project has the same risk as the firm’s overall cost of capital.
Equity costs 15% and the after-tax cost of debt is 6%. If the firm’s D/E ratio is 1.2, what is the most the firm can afford to pay for the project? A. $212,250 B. $247,750 C. $276,500 D. $366,250 E. $412,750 5. (2 marks) You own 50 shares of Stock A, which has a price of $12 per share, and 100 shares of Stock B, which has a price of $3 per share. What is the portfolio weight of Stock A? A. 25% B. 33% C. 50% D. 67% E. 75% 6. (2 marks) Suppose a firm uses a constant WACC to make capital investment decisions without any adjustments for risk. The firm will tend to: A. accept profitable, low risk projects and reject unprofitable, high risk projects. B. accept profitable, low risk projects and accept unprofitable, high risk projects. C. reject profitable, low risk projects and accept unprofitable, high risk projects. D. reject profitable, low risk projects and reject unprofitable, high risk projects. E. become less risky over time. 7. (2 marks) Use the following historical average return and standard deviation to answer the question below. Assume the return on large Canadian stocks is normally distributed. Assuming a 95% probability, what is the lowest return you would expect to earn on these investments?
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