• The first 15 minutes of the exam session will be used to review the exam before commencing; a Q&A session is allowed during these 15 minutes. Students can ask their question and the professor’s response will be shared with the entire class. No disrupting the class after the first 15 minutes after the exam has been distributed.
• No student will be allowed in the exam session after 15 minutes.
• Students may only have a pen and calculator (if specified) on the desk. No extra paper, books, mobile phones, or electronic device is allowed. Any extra paper needed will be brought to you by the administration department upon request. All mobile phones should be switched off and students’ belongings on the floor at the front of the class; any person found with an unauthorized device, concealed or otherwise, will receive a zero on the exam.
• If a calculator has been authorized by the professor, then this must be a calculator. No cell phones, smart-phones or any electronic device of any sort will be permitted. In the case that a student has forgotten their calculator, they will be requested to do the calculations by hand or obtain one before the start time of the exam.
• Students may not leave the exam for any reason, should they insist of doing so they will not be allowed to return to the exam. Toilet issues should be addressed before the start of the exam; exams over 2 hours in duration, please leave your exam with the professor and ask to be escorted by an administration member to the bathroom.
• You may not leave the exam session during the last 15 minutes.
• Speaking is not allowed under any circumstances. Should a student be seen or heard communicating with another student, they will be disqualified for the session and awarded a zero for the exam.
• If a student is caught or suspected of cheating, he or she will be sent to the administration department immediately and a disciplinary file will be opened. Cheating of any kind will result in a 0 and no retake will be allowed.
• If formulas are allowed in the exam, only professors may give the necessary information to the student either by writing on the board or handing them directly to the students. Students may not use their own notes unless specified ahead of time.
By signing this document, I verify that I have read the above rules and am aware of the consequences of not abiding by them. My exam will only be valid when signed.
Start here:
Summary Table
Problem Brief Solution Weight
1
10%
2 a PeterCo Bonds % YTM, maturity=10Years S&P Rating Order from most secure (1) to least (5) Mark with “x” the Junk Bonds
A 3,1 BBB
B 2,3 A
C 4,6 BB
D 17.9 CC
E 12,3 CCC
10
b
10
20%
3
a)
10
b)
10
20%
4 Better Portfolio Why? Justify using financial arguments and formulas
a-Based on Return
5
b-Based on Risk
5
Based on Risk and Return
10
20%
5
a)
10
b)
5
15%
6
15%
Problem 1: (Excel is not required)
Explain the different between Expected Rate of Return and free risk rate (10 points)
Problem 2: (Excel is not required)
PeterCo has the following Government Bonds:
a-Complete the following table (Excel is not required, 10 points)
PeterCo Bonds % YTM, maturity=10Years S&P Rating Order from most secure (1) to least (5) Mark with “x” the Junk Bonds
A 3,1 BBB
B 2,3 A
C 4,6 BB
D 17.9 CC
E 12,3 CCC
b) Explain this: “As interest rates increase (decrease), the value of the bond decreases (increases)”, using Financials arguments and represent this relationship graphically (10 points):
Problem 3: (Excel is not required)
Bimbo Inc preferred stock is selling for 12 € in the market and pays a 5.60 € annual dividend. If the market or promised yield is 10%
a-what is the value of the stock for that investor? (10 points)
b-Should the investor acquire the stock? Why? (10 points)
Problem 4: (Excel is not required)
Turbo Inc is considering an investment in one of two portfolios.
Portfolio 1 Portfolio 2
E(r) 7,4% E(r) 16,2%
Standard Deviation 8,26% Standard
Deviation 2,26%
Given the information that follows, complete the table below using financial arguments and formulas:
a) which investment is better based on return and why?
b) which investment is better based on risk and why?
c) which investment is better based on section a and b and why?
Better Portfolio Why? Justify using financial arguments and formulas
a-Based on Return
5
b-Based on Risk
5
c-Based on Risk and Return
10
Problem 5: (Excel is optional)
CoKi-Cola outstanding common stock is currently selling in the market for 13 $. Dividends of 2,3 $ per share were paid last year, return on equity is 20% and its retention rate is 25 %. Picture the problem, decide on a solution strategy, solve and analyze
a) What is the value of the stock to you given a required rated of return of 16%? (10 points)
b) Should you purchase this stock? (5 points)
Problem 6: (Excel is optional)
What is the yield to maturity of a corporate bond with 20 years to maturity, a coupon rate of 5 % per year, a $1,000 par value, and a current market price of $1,250? Assume semiannual coupon payments. Picture the problem, decide on a solution strategy, solve and analyze. (15 points)
