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UMUC FIN 620 Final Exam with Answers


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FIN 620 Final Exam  Answers 2020 (UMUC)

  1. The euro is currently trading at 0.80 euros per dollar.  The interest rate on the US Treasury Bill is 0.023 and the risk free interest rate in Europe is 0.019.  What is the arbitrage free future exchange rate between the euro and the U.S. dollar for two years in the future in euros per dollar?
  2. An investor buys a call option on EBAY with a strike price 15, and a call premium of 3.8.  If EBAY expires at 29, what profit did the investor make? Each option covers 100 shares of the underlying stock. 
  3. A steak house takes a long position on cattle futures to limit its risk in the case of a cattle price increase. Six months later the steak house wants to eliminate its obligation under this position before the futures contracts expire.  What should the steak house do?
  4. Hoffman Corporation is currently taking for 180 and has 11,000 shares outstanding. If Hoffman does a 5 for one stock split, what should the new stock price be?
  5. Jasmine Inc has a Net Income of 560, a target equity fraction of 0.6, and a project new capital budget of 340.  What should Jasmine's dividend be under the residual dividend model?
  6. Boer Inc. expects to pay a dividend 2.0 in one year, it's current stock price is 30.0. and its dividend growth rate is 0.01. If Boer's investment bankers charge a flotation cost of 0.14 as a fraction of the price of a new stock issue, what is Boer's cost of issuing new equity?
  7. Murphy Inc. preferred stock currently pays a dividend of 10 per year and has a yield of 0.12. What is the current price of Murphy's preferred stock?
  8. Ebling Inc. finances with 0.2 fraction debt, 0.2 fraction preferred and the remaining common stock. Ebeling's before tax cost of debt is 0.04, it cost of preferred stock is 0.10, and its cost of common stock is 0.19.  If Ebeling is subject to a 0.2 fraction corporate income tax, what is the company's Weighted Average Cost of Capital?
  9. Give the order, in case of bankruptcy, of who gets paid off from first to last. 
  10. A common price for Nasonex in Europe is 6. The Dollar/Euro Exchange Rate is 0.8.  According to PPP what should be the price of Nasonex in Dollars in the United States?
  11. A company with an average WACC of 10% adjusts for risk by adding 2% for high risk projects and subjecting 2% for low risk projects. Which of the following projects should the company accept?
  12. The expected rate of return on a Treasury Bill is 0.021, the expected rate of return on the Wilshire 5000 is 0.11 and the required rate of return of a stock is 0.14.  What is the stocks beta?
  13. Rank the following asset classes from highest to lowest in total returns over the last 50 years.
  14. For a typical corporation rate the following costs from highest to lowest. 
  15. Consider the following cash flows: Co = -100, C01 = 80, C02 = 45.0, C03 = 10.0.  What is the payback period?
  16. Project Salerino has the following cash flows: CF0 = -100, C01 = -350, C02 = 200, C03 = 410, C04 = -30.  What is the FV of only the profits to Salerino if the cost of capital is 0.05? 
  17. Consider a company with a free cash flow (FCF) of 305,000, a weighted average cost of capital (WACC) of 0.15 and an expected growth rate of 0.02.  What is the company's value using the constant growth stock model?
  18. Consider a speculator in a long oil futures contract that controls 1000 barrels of oil. If the speculator signs 12 long positions when the price of oil is 88.9, and the price of oil changes to 129.4, how much money has the speculator made or lost?
  19. Which of the following actions is most likely to cause a company to reduce the amount of debt in its capital structure? 
  20. Consider a plain vanilla fixed for floating interest rate swap with a notional principal of 5,100,000 and annual payments. Initially the swap was supposed to last for five years and now three years remain.  If the initial fixed rate is 0.07, LIBOR is 0.05, and the year three payment was just made (two years of payments remain on the swap), What is the absolute value of the swap?

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