$1.$ What is a common proxy for risk free rate? $(3)$

$2.$ State briefly the market efficiency idea. Which form of Market efficiency do you believe in and why? $(3)$

$3.$ Given an interest rate of zero percent, what will be the

future value of a lump sum invested today? $(3)$

$4.$ As interest rate increases, what happens to the future value

of a dollar? To a present value of a dollar? $(3)$

$5.$ What would you prefer to get: $($a$)$ $$100$ compounded for

three years, $($b$)$ $$100$ annuity compounded for three years,

$($c$)$ the present value of $$100$ received after three years? $(3)$

$6.$ How many different stocks would you recommend to keep

in a portfolio and why? $(3)$

$7.$ What is a typical size of a standard deviation in a well$-$

diversified portfolio and what is the underlying factor that

determines it$?(3)$

$8.$ You are considering investing in one of these three stocks:

If you are a strict risk minimizer, you would choose Stock

if it is to be held in isolation and Stock

if it is to be

held as part of a well$-$diversified portfolio. $(3)$

$9.$ Joel Foster is the portfolio manager of the SF Fund, a $$3$

million hedge fund that contains the following stocks. The

required rate of return on the market is $11\mathrm{.}00\%$ and the

risk$-$free rate is $5\mathrm{.}00\%.$ What rate of return should investors

expect $($require$)$ on this fund? $(7)$

$10.$ Returns for the Alcoff Company over the last $3$ years are

shown below. What's the standard deviation of the firm's

returns? $($Hint: This is a sample, not a complete population,

so the sample standard deviation formula should be used.$)$

$(7)$

$11.$ Freedman Flowers' stock has a $50\%$ chance of producing a

$25\%$ return, a $30\%$ chance of producing a $10\%$ return, and a

$20\%$ chance of producing a $-28\%$ return. What is the firm's

expected rate of return? $(7)$

$12.$ Zacher Co$.\text{'}$s stock has a beta of $1\mathrm{.}40,$ the risk$-$free rate is

$4\mathrm{.}25\%,$ and the market risk premium is $5\mathrm{.}50\%.$ What is the

firm's required rate of return? $(7)$

$13.$ You are offered two jobs. One initially pays $$25,000$

annually, and your salary will grow annually at $10\%.$ The

other pays $$22,000$ annually, but your salary will grow at

$12\%.$ After $10$ years, which job pays the higher salary? $(7)$

$14.$ An apartment will generate $$12,000$ a year for $5$ years,

after which you expect to sell the property for $$100,000.$

What is the maximum you should pay for the property if

your cost of money is $10\%?(7)$

$15.$ The big$-$Sox currently have $30,000$ spectators per game

and anticipate annual growth in attendance of $9\%.$ If the

Big Stadium holds $65,000$ people, how long will it take for

the team reach capacity? $(7)$

$16.$ You bought an asset for $$10,000$ and sold it for $$20,000$

after $10$ years. What was the annual rate of return on this

investment? $(6)$

$17.$ Companies generate income from their "regular"

operations and from other sources like interest earned on

the securities they hold, which is called non$-$operating

income. Lindley Textiles recently reported $$12,500$ of

sales, $$7,250$ of operating costs other than depreciation, and

$$1,000$ of depreciation. The company had no amortization

charges and no non$-$operating income. It had $$8,000$ of

bonds outstanding that carry a $7\mathrm{.}5\%$ interest rate, and its

federal$-$plus$-$state income tax rate was $40\%.$ How much was

Lindley's operating income, or EBIT? $(7)$

The balance sheet and income statement shown below are for

the problems $18$ and $19.$

$18.$ What is the firm's current ratio? How would you interpret

the ratio? $(7)$

$19.$ What is the firm's ROA? How would you interpret the

ratio? $(7)$