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Arizona State University - FIN 421 / FIN421 Practice Final EXAM Questions & Answers $14.99
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Arizona State University - FIN 421 / FIN421 Practice Final EXAM Questions & Answers
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  • FIN 421
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  • FIN 421

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 ne...

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  • January 27, 2022
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  • 2022/2023
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  • arizona state university fin 421 fin421 practice final exam questions amp answers

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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




2

, 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 rA = (22 + 2)/20 − 1 = 0.2, rB = 21 (130 + 10)/100 − 1 = −0.3. 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
Stocks T −bills
Rt:t+5 − Rt:t+5 = α + β · Dt /Pt + εt+5

Your OLS estimates are α̂ = −0.1 and β̂ = 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

Answer: E
Stocks\ T −bills
The forecast equals the fitted value of the regression, i.e. Rt:t+5 − Rt:t+5 = −0.1+13.6·
0.03 = 0.308 = 30.8%.

3

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