4.(4%) ABC Inc. will remain in business for one more year. The probability of a boom year is 60 percent and the probability of recession is 40 percent. It is projected that the company will generate a total cash flow of $60 million in a boom year and S30 million in a recession year. The company's required debt payment at the end of the year is $50 million. The market value of the company's outstanding debt is $40 million. The company pays no taxes. What is the expected rate of return on the company's debt?
(A) 5%
(B) 20%
(C) -4%
(D) -16%
(E) None of above

1.(4%) Consider a T-bill with a rate of return of 3% and the following risky securities: Security A: E(r) = 18%； Variance = 0.5 Security B: E(r) = 12%； Variance = 0.16 Security C: E(r)= 15%； Variance = 0.25 Security D: E(r) = 14%； Variance = 0.36 If a risk-averse investor would like to hold a complete portfolio formed with the risk-free asset and any one of the four risky securities, which set of portfolios will the investor always choose? (A) The set of portfolios formed with the T-bill and security A. (B) The set of portfolios formed with the T-bill and security B. (C) The set of portfolios formed with the T-bill and security C. (D) The set of portfolios formed with the T-bill and security D. (E) Cannot be determined.

2.(4%) Conventional utility functions are________ and defined in terms of ________, whereas prospect theory assumes that utility functions are________ and defined in terms of________. (A) concave； wealth； convex to losses and concave to gains； the change of wealth. (B) convex； the change of wealth； convex to losses and concave to gains； the change of wealth (C) convex to losses and concave to gains； the change of wealth； concave； wealth (D) convex to losses and concave to gains； wealth； concave； the change of wealth (E) concave； wealth； concave； the change of wealth

3.(4%) If the variance of a portfolio return can represent the total risk of the portfolio and the correlation coefficient between a balance fund and the market index is 0.6, what percentage of the balance fund's total risk is specific? (A)60% (B)36% (C)64% (D)40% (E) cannot be calculated due to limited information

5.(4%) Edward just bought 1,000 shares of stock in Gampers Corporation. He will receive a $1 per share dividend at the end of his first year holding. At the end of second year holding, Gampers will pay a liquidating dividend of $50 per share. The require rate of return on Gampers stock is 10 percent. If Edward would rather have equal dividends in cach of next two years, show how he can accomplish this at the end of first year. (A) Sell 535.33 shares at $45.45. (B) Sell 590.165 shares at $41.23. (C) Sell 565.9117 shares at $41.23 (D) Sell 513.33 shares at $45.45. (E) Sell 552.5114 shares at $42.23.

6.(4%) Greenhouse Inc. has a current period cash flow of $2 million. The present value of the company's future cash flows is $30 million. The company is entirely financed with equity and has 800,000 shares outstanding. The board of director of Greenbouse Inc. decides to pay 40% of its current cash flow as cash dividends to its shareholders. Jenny currently owns 1,000 shares of Greenhouse stock. How much of additional shares she will have if she achieves a zero payout policy on her own? (A) 25.00 shares (B) 25.64 shares (C) 26.67 shares (D) 27.40 shares (E) None of above

7.(4%) Which statement is true regarding the capital market line? I. The capital market line is a capital allocation line from the risk-free rate through the market portfolio. II. The capital market line is the best attainable capital allocation line. III. The capital market line is also called the security market line. IV. The capital market line always has a positive slope. (A)I only (B) I and II (C) II and IV (D)I, II, and IV (E) I, II, III, and IV

8.(4%) Two portfolios have the following probability distributions of rate of return for the following one year.  What is the correlation coefficient between these two portfolios? (A)0.67 (B)-0.67 (C)-0.46 (D)-0.0024 (E) None of above

9.(4%) Based on the information provided in question 8, please answer the following question. You are considering investing $1,000 in a complete portfolio which is composed of stock fund and bond fund. To form a complete portfolio with an expected rate of return of 13.5%, you should invest approximately_________ in the stock fund. (A)150% (B)60% (C)55% (D)100% (E) None of above

複選題8. Which of following(s) is potential mutual fund expense that Professor Samuel could pay to the mutual fund company? (A) Front-end load (B) Back-end load (C) 12b-1 fees (D) Fund manager's compensation (E) Management fees

複選題7. As the third category of investment, Professor Samuel considers mutual fund investment. If a mutual fund, which is also a portfolio p consists of N stocks {x1, .... XN}, with equal weights and heterogeneous returns {r,..,rN). Its variance could (A) be smaller when N is larger (B) is a quadratic fomm of average of variances of ri to rv. (C) converge to zero when N approaches infinite (D) converge to the average of covariances between ri and rj (i≠j)when N approaches the infinite (E) is appropriately equal to unsystematic risk when N approaches the infinite

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