5 Questions in Quiz 6 - Corporate Financial Management | FIN 4360, Quizzes of Finance

Download 5 Questions in Quiz 6 - Corporate Financial Management | FIN 4360 and more Quizzes Finance in PDF only on Docsity! Finance 4360; Quiz 6; Spring 2008; 9:00 Class Name _________________________________ Note: For any question with numbers, all of the points are earned by setting up solutions. There are no points for any calculations. As a result, you will likely earn a higher grade on this quiz if you simply set up problems but never touch your calculator. “Setting up solutions” may involve writing a single number. 1. On a graph, identify a reasonable market portfolio when the rate at which investors can borrow differs from the rate at which they can lend. 2. Assume that you have $300,000 to invest. How much would you need to invest in Firm #3 to construct a value- weighted portfolio of the four stocks below? Firm Market Value (Millions) #1 $20 #2 $40 #3 $10 #4 $35 3. GreenWal has a beta of 0.3. Under the assumptions of the CAPM, what is the expected return on GreenWal if the market portfolio has an expected return of 11% and the risk-free rate is 3%? Use the following information to answer questions 4 and 5 below. Sirius Black XM Radio is unlevered and its stock has a market value of $100 million. The beta of Sirius’ stock is 1.4 and the expected return and cost of capital on its stock is 12.4%. The risk-free rate is 4%. 4. According to Modigliani and Miller, what would Sirius Black XM’s stock be worth if Sirius Black XM were funded with equity and $20 million of risk-free debt rather than entirely with equity? 5. What would Sirius Black’s cost of equity capital be in number 4?