Mid-Term Examination Summer2012 First

Name: 9tu Her
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Last

Name:

Lo

LD.:

Duration: 2.5 hrs
Instructions (very iryortant): This examination paper consists of 12 pages, including this page, and the formrla sheet. Please make sure your copy has all pages before cDmme,ncing to uirite. You m:st answer the multiple choice questions by circling the choice you believe to be correct. Write all your answers to the other questions in the examination answer booklet. You may answer the questions in any order you prefer. Read the questions carefirlly and budget your

tire

wisely. Show all calculations.

This is a closed book examination. However, a silent hand-held (not graphical) calculator and one standard language (not electronic) dictionary are permitted. Retum the exam along with the examinxlisl answer booHet vihen finished

ORGANZE YOUR A}ISWERS NEATLY WTT'HIN YOUR AT.{SWER BOOKLET. IN ORDER FOR ME TO GRADE YOIJR WORK- ALL CAITLILATIONS AND / OR DPLINATIONS MUST BE NEAT A}{D LEGIBLE.
Questions

Points Obtained
140

Part

I
Bonus Question I Bonus Question 2

o/2

an

Part tr
Question

I

Question 2 Question 3 Question 4

oi5 als
(/5 (/5
/5

x. /30

Question 5

Part

III
Question
1

t

e/s
/10

/7.

s

/30

Question 2

./ /10

Question 3

ec

/10 /100

Total

Pert I: Multiple Choice Questions (2 point
I

each)

n

.

You pwchased a share of stock for $20. One year later you received $1 as dividend and sold $29. What was your holding period retum?

tle

share

for

A (b.)
d. e. a- 4s%
50%

Ys%

40% none ofthese are financial assets. Bonds Machines

2.
b.

,'4a Stocks 'rd-\

V

aandc a,bandc

3.

Psychologists have found that people who make decisions that tum or.rt badly blame themselnes more nlhen thag&cision was unconrrentional. The name for this phenomenon is Regret Avoidance

\u) o. c. d. e. '\9 c. d. e. a. b. ,1 d, -d

rramrng
Mental Accounting
Orrcrconfidence

Obnoxicity

4.

The holdingperiod retum (IPR) on a share of stock is equal to _a. The capital gain yield over the period plus the inflation rate. The capital gain yield orer the period plus the dividend yield. The current yieldplusthe dividendyield. The dividendyieldplus theriskpremium The change in stockprice Corporate shareholden are best protected from incoryetent management decisions by the ability to engage in prory fights management's control ofpecuniaryrewards the ability to call shareholder meetings the threat of takeoverby other firms (

5.

one-share/one-voteelectionrules
7o/o.

A year ago, you invested $1,000 in a savings account that pays an annual interest ratp of appre+imate annual real rate of return if the rate of inflation was 3% over the year?

What is your

k/ b.

4%.
10%.

c. 7%.
d. e.
3%. none of these.

(=

rtl

7.

The refen to the potential conflict between management and shareholders due to management's conhol of pecuniary rewards as well as the possibility of incoryetent performance by

magrErrs. agencyproblem

[9/ b. c. d. e.

diversificationproblem

liquidityproblem solvencyproblem regulatoryproblem

8.
a.

b.
c.

ilre exaryles of financial intermediaries. Chartered banks Insurance comFanies

d.

e
9.

Investment ooffpanig5 Credit unions All of these is equal to (common shareholders' equity/common shares outstanding).

--(a) E c. d. e.

nook ralue pei share Liquidation value per share
Market value per share Tobin's Q None of these

10. You have been given this

probability distribution for the holding period retum for XYZ stock:
State of the Economy

Probabilitv
0.30 0.50 0.20

IIPR
18%

Boom
Normal Growth
Recession

t2%
-5%

What is the expected holdingperiod return forYYZ stock?

a. b. @ d. e.

11.67%

8.33%
10.4%

r2.4% 7.88%

I

t.

Over the past year you earned a nominal rate of interest of l0 percent on