Download Questions for Final Exam - Seminar in Corporate Finance | FIN 5360 and more Exams Finance in PDF only on Docsity! Final; Finance 5360; Fall 2007 Name ___________________________ Notes: 1) Set up calculations to support your answers whenever possible. 2) For all problems requiring calculations, you will only earn points for setting up solutions. You will not earn any points for calculating or solving anything. “Setting up solutions” means writing down the appropriate equation or equations and plugging in as many numbers as possible. For later steps in multi-step problems, you can plug in unsolved variables...variables you have set up to solve but have not actually solved. Example: X = (2 + 3)3.5; Y = X/7.31. Short Answer (15 points each) Note: if you write more than a sentence or two for a short-answer question, you are writing too much and may have difficulty finishing the exam. 1. Other things equal, what happens to the risk of a portfolio as the correlation between the returns on the stocks in the portfolio falls? 2. How are stock alphas related to the efficiency of the market portfolio? 3. In a perfect capital market, what happens to a firm’s weighted average cost of capital as the firm increases the amount of debt in its capital structure? 4. In a perfect capital market, how does an increase in the amount of debt in a firm’s capital structure impact the beta of the firm’s stock? 5. How would an increase in corporate tax rates impact the optimal capital structure for a typical firm? 6. If asymmetric information exists, what does an increase in debt signal about a firm and why is this signal credible? 7. Assume you own 100 shares of Dell and also own a put with a $25 strike price that expires 2 months from today. Sketch a graph of your payoff two months from today as a function of stock price. 8. Other things equal, what happens to the beta of a call as the price of the stock on which the call is written falls? 9. The ability to delay an investment opportunity is most like what kind of option transaction (consider owning, being short, or exercising either a call or put)? 10. The option to walk away from a project is similar to what kind of option transaction (consider owning, being short, or exercising either a call or put)? Problems (75 points each) 1. Given the following returns for Barnes & Noble (BKS) and the Standard & Poor’s 500 (S&P500), calculate the volatility and beta of Barnes & Noble. Return on: Year BKS S&P500 1 -23% -18% 2 40% 13% 3 13% 11% 4 50% 6% 5 1% 14% Page 1 of 2
