Sample Exam

You recently purchased a stock that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy. There is a 15% probability of a boom, a 75% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock?

academic year interest rate of 3.76 percent would pay a 5,032 dollars interest over 10 years,

b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.

Know which of the following statements is not true regarding the characteristics of a general partnership?

You can earn 5% per year compounded annually for the next 4 years, followed by 8% per year compounded quarterly for 5 years. What is the average annual compounded rate of return over the 9 year period?

b. If you inherited $100,000 today and invested all of it in a security that paid an 8% rate of return, how much would you have in 15 years?

a. What is the CD’s value at maturity (future value) if it pays 10 percent annual interest?

year 2 is $23.64 or $33.64. In each case the market expects the firm to earn 10%

9. You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you needed a 14% return to make this deal?

(5) How much would you be willing to pay for a share of Boston Beer if you think that the growth rate from 1996-1999 will be 30%, declining to 5% in perpetuity thereafter?

Burnes, Inc. is a mature firm that is growing at a constant rate of 5.5 percent per year. The firm’s last dividend was $1.50. If the required rate of return is 12 percent, what is the market value of this stock assuming dividend growth equals the growth rate of the firm?

For g, we are given that the dividend has grown from $0.82 to $1.20 in four years. We use the compound interest formula to get the growth rate

1. In the last five years the growth in sales for the company has been around 10% per annum, except for the 1997, the growth was 18.78%. In the case, nothing is mentioned that company has made any drastic changes in its strategy to grow faster. In such a scenario, projected a consistent growth of 20% per annum for the next 5 years is too optimistic.

However, the company expects that its sales will grow 25 percent annually for the next five years. As illustrated in Table 1 the demand after 5 years will be approx.

(Compound value solving for I) at what annual rate would the following have to be investe