FIN 421 Practice Final Exam 2019 Questions with Answers Complete Guide.

Practice Final Exam FIN 421 Spring 2019 Name: Student ID: Section: Please circle the appropriate section. 10726 (T 6pm) 10727 (T/Th 3pm) 19834 (T/Th 12pm) Part I / 40 Part II / 20 Part III / 40 Total / 100 • You have 110 minutes to complete this exam. • Only calculator and pen are allowed. A formula sheet is provided on the last pages. • You are to answer these questions without consulting anyone. • Show your work wherever necessary. • Manage your time wisely. Shorter answers are often better. Part I. Multiple Choice Questions (5 points each) Choose only one answer for each question and write the corresponding letter in the table below. No justifications required. Question Answer 1 2 3 4 5 6 7 8 1. Shares outstanding (St), stock prices (Pt), and Dividends (Dt+1) for assets A and B are given below. All dividends are paid out at the end of the year, 12/31/2017. Asset B performed a 1:2 inverse stock split at the beginning of the year, 01/01/2017, where two old shares were combined into one new share. What is the value weighted portfolio return? Date Asset A Asset B St Pt Dt St Pt Dt 12/31/2016 (t) 100 20 10 100 12/31/2017 (t+1) 100 22 2 5* 130 10 Asset B performed a 1:2 inverse stock split on 01/01/2017. A) -13.33% B) -5% C) 73.33% D) 3.33% E) 126.67% Answer: D Weights are wA = 100 × 20/(100 × 20 + 10 × 100) = 2/3 and wB = 1 − wA = 1/3 Returns are . The value weighted return is 2/3 × 20% + 1/3 × (−30%) = 3.33%. 2. You regress 5-year excess returns on the dividend yield, i.e. you run the regression Your OLS estimates are ˆα = −0.1 and βˆ = 13.6. If the current dividend yield equals 0.03, what is your forecast of the 5-year excess return today? A) 31.8% B) 3.0% C) 40.8% D) 6.2% E) none of the above