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FIN 310 Final Exam Questions and answers latest update
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Solution 2024/2025Pepper
FIN 310 Final Exam Questions and answers
latest update
a company whose stock is selling for $60 has the following balance sheet:
assets= 30,000,000
liabilities= 14,000,000
preferred stock= 1,000,000
common stock ($12 par; 100,000 shares outstanding)= 1,200,000
paid-in capital= 1,800,000
retained earnings= 12,000,000
-what are the effects of a 3-for-1 split? ANS✔✔ amounts on balance sheet
stay the same
-common stock: $4 par, 300,000 shares outstanding*par divide by 3, shares
multiply by 3
-new price of stock= $20 (divide by 3)
A firm's balance sheet has the following entries:
Cash $20,000,000
Total assets 100,000,000
Common stock (10,000,000 shares outstanding, $2.5 par) 25,000,000
Capital in excess of par value 5,000,000
Retained earnings 20,000,000
-What will be each of these balance sheet entries after a $1 a share cash
dividend? ANS✔✔ cash DECREASES dividend impacts cash, total assets,
retained earnings
, Solution 2024/2025
Pepper
cash: $1 x 10,000,000 shares= $10,000,000
cash: 20,000,000-10,000,000= 10,000,000 (decreases by 10,000,000)
total assets: decrease by the same amount as cash
retained earnings:decreases by same amount (must happen on both sides)
A firm's balance sheet has the following entries:
Cash $20,000,000
Total assets 100,000,000
Common stock (10,000,000 shares outstanding, $2.5 par) 25,000,000
Capital in excess of par value 5,000,000
Retained earnings 20,000,000
-What will be each of these balance sheet entries after a 1 percent stock
dividend (current market price of the stock is $20 per share) ANS✔✔ stock
dividend doesnt effect assets; effects common stock, capital in excess, and
retained earnings
common stock:
1% x 10,000,000 shares= 100,000 shares increase
new shares amount= 10,100,000
10,100,000 x 2.5 par value= 25,250,000
retained earnings:
100,000 new shares x 2.5 par value= 250,000
$20 current market price - $2.5 par value= $17.5
17.5 x 100,000 new shares= 1,750,000
1,750,000 + 250,000= 2,000,000 decerase in RE
20,000,000-2,000,000=18,000,000
, Solution 2024/2025
Pepper
capital in excess:
5,000,000 + (($20-$2.5) x 100,000)= 6,750,000 new balance
*stock price will become $19.80
original: 10,000,000 stocks x $20= 200,000,000
200,000,000/1,010,000 new stocks= 19.8
The price of a stock is $51. You can buy a six-month call at $50 for $5 or a
six-month put at $50 for $2.
-What is the intrinsic value of the call? ANS✔✔ intrinsic value of call= stock
price - exercise price (cannot be negative)
51-50= $1
The price of a stock is $51. You can buy a six-month call at $50 for $5 or a
six-month put at $50 for $2.
-What is the intrinsic value of the put? ANS✔✔ intrinsic value of put=
exercise price - stock price (cannot be negative)
50-51= -1
intrinsic value= 0 because it can't be negative
The price of a stock is $51. You can buy a six-month call at $50 for $5 or a
six-month put at $50 for $2.
-What is the time premium paid for the call? ANS✔✔ time premium= call
price - intrinsic value
5-1= 4
The price of a stock is $51. You can buy a six-month call at $50 for $5 or a
six-month put at $50 for $2.
, Solution 2024/2025
Pepper
-What is the time premium paid for the put? ANS✔✔ time premium= put
price - intrinsic value
2-0= 2
The price of a stock is $51. You can buy a six-month call at $50 for $5 or a
six-month put at $50 for $2.
-If the price of the stock falls, what happens to the value of the put? ANS✔✔
The value of the put increases as stock price decreases because intrinsic
value is 0
The price of a stock is $51. You can buy a six-month call at $50 for $5 or a
six-month put at $50 for $2.
-What is the maximum you could gain and lose by selling the call covered?
ANS✔✔ gain: 50-51= -1 + 5= 4
lose: could lose 51 if stock price goes down to 0 but gain 5
-51 + 5= -46
Consider the data in the following table for a hypothetical two-stock version
of the Dow Jones Industrial Average.
Stock ABC:
initial price= 30
final price= 40
shares (millions)= 20
Stock XYZ:
initial price= 70
final price= 60
shares (millions)= 1
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