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# CE_Final_Exam_Spring_2006_Version_4_-_With_Solutions.doc

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Ryerson University

Finance

FIN 300

Mike Inglis

Fall

Description

Ryerson University
CFIN300
Final Exam
Winter 2006
There are 2.5 hours in this exam.
Version #4
Student Name ________Solution Key_________
(Please Print)
Student Number _________________________________
Notes:
1. This is a closed book exam. You may only have pens, pencils and a calculator at
your desk.
2. A formula sheet is attached to the end of the exam. You may detach the formula
sheet from the exam.
Please fill out the scanner sheet as you go along in the exam. You will not be given extra
time at the end of the exam to fill it out.
3. Select the best possible answer for each multiple-choice question
4. Each of the 50 MC questions is worth 1 mark
Marks: Available
Total 50 _________
There are 18 pages in this exam. CFIN300: Final Exam: Spring 2006 Version #4
Multiple Choice Questions:
Please answer the 50 multiple choice questions on the scanner sheet provided. Choose the
best answer from the set given for each question. Note, only the scanner sheet will be
marked, and anything written on the test paper will be completely disregarded.
1. At 10:59 A.M., the price of Nexus Corp. stock is $25 on the stock exchange. At 11:00,
Nexus management unexpectedly announces that the firm has just struck oil in
Northern Timbuktu (a good thing). There are no other relevant announcements during
the day. At 11:01, Nexus stock is selling for $28.10. At 12:01, the stock is selling for
$28.00 on the stock exchange. At 4:00 at the close of trading, Nexus stock is still
selling for $28.05. Which of the following statements is most consistent with the above
information?
a) The market is weak form efficient
b) The market is not weak form efficient
c) The market is semi-strong form efficient
d) The market is not semi- strong form efficient
e) The market is strong form efficient
2. You have just gotten a mortgage for $150,000. The interest rate on the mortgage is 6%
per year, compounded semi-annually. If the amortization period is 25 years, and you
are going to make weekly payments what will be the size of each payment?
a) $221.05
b) $590.44
c) $219.27
d) $219.02
e) $302.46
3. In a truly competitive environment in which everyone has the same capabilities, where
there are no barriers to entry, where there are no patent or copyright laws, and where
everyone has equal access to funding, investments
a) Will tend to have a net present value of zero
b) Will tend to have a potential profit of zero
c) Will tend to have a positive net present value
d) Will tend to have a negative net present value
e) None of the Above
2 CFIN300: Final Exam: Spring 2006 Version #4
4. You have been asked to calculate the required rate of return on ABCs common stock.
The stock just paid a dividend of $2. The dividend is expected to increase by 6% per
year in perpetuity. The stocks current price is $10 per share.
a) 27.2%
b) 26.0%
c) 16.6%
d) 16.0%
e) none of the above
5. Given no change in required returns, the value of a share of stock whose dividend is
constant will:
a) increase over time at a rate of r percent
b) decrease over time at a rate of r percent
c) increase over time at a rate equal to the dividend growth rate
d) decrease over time at a rate equal to the dividend growth rate
e) remain unchanged
st
6. A bond is issued on January 1 , 1994. It is a 20-year 5% annual coupon bond with a
$1000 face value. If the price of the bond at issue is greater than $1000,
a) The yield to maturity on the bond will be less than 5%
b) The yield to maturity on the bond will be greater than 5%
c) The yield to maturity on the bond will be 5%
d) We cannot determine from the information provided if the yield to maturity on the
bond will be greater than, less than, or equal to 5%
e) None of the Above
7. Sunk costs
a) Must be incorporated into the capital budgeting calculation, just like any other cash
flow
b) Should not be factored into the capital budgeting calculation
c) Should or should not be factored into the capital budgeting calculation, based on the
type of sunk cost involved
d) Are costs that occur after the start of a capital budgeting project
e) None of the Above
3 CFIN300: Final Exam: Spring 2006 Version #4
8. Risk adverse investors prefer risk for a given level of expected return and
expected return for a given level of risk.
a) More, more
b) More, less
c) Less, more
d) Less, less
e) None of the above.
9. You have been asked to determine the cash flow from the assets for ABC Inc. ABC had
net income of $100. Its interest expense was $20. The companys tax rate was 40%.
ABCs capital spending and depreciation was $10. The companys net working capital
for the year did not change.
a) $ 60.00
b) $166.67
c) $120.00
d) $170.00
e) none of the above
10. Assume the anticipated growth rate in dividends is constant for Fly-By-Nite Airlines.
The expected value of the firm's stock at the end of four years (P4) is
I. D5/(r g)
II. P0 * (1 + g)4
III. D0 * (1 + g)/(r g)
a) I only
b) II only
c) I and II only
d) I and III only
e) I, II, and III
11. The risk free rate in the economy is 7%. Stock A has an expected return of 13.5% and
a beta of 1.2. Stock B has an expected return of 10.5% and a beta of 0.8. Suppose that
we know that stock A is fairly priced and the betas of stocks A and B are accurate.
Which of the following regarding stock B is correct?
a) Stock B is also fairly priced
b) The expected return on stock B is too high
c) The expected return on stock A is too high
d) The price of stock B is too high
e) The price of stock A is too high
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