Essay About Corporate Finance And Last Sheet

Corporate Finance
NORWEGIAN SCHOOL OF ECONOMICS                                Examination fall semester 2014Code:   FIE402N        Title:   Corporate Finance / Foretakets FinansieringDate:    25 November        Time:   09:00-13:00The course instructor will not visit the examination room, but may be contacted by an examination attendant at 59 291 or mob. 970 19 567The students may respond in Norwegian or English.Materials permitted for use during the examination:Materials permitted:  YES, cf list below: XElectronic calculator:  YES: XIn accordance with the rules specified in ”Utfyllende bestemmelser til Forskrift om eksamen ved Norges Handelshøyskole (fulltidsstudiene)”List of materials permitted:One dictionaryFIE  402  CORPORATE  FINANCE   FALL 2014All four problem sets on the next seven pages should be answered. The last sheet contains a collection of formulas, some of which may be useful during the exam.The stated time limits may be helpful in allocating your time among the questions — they are also the weights for the total grade. Short and precise answers are favored.PROBLEM 1. Multiple Choice (Q1 through Q14)   (max 90 min)Suppose the risk-free rate is 4% and the market portfolio has an expected return of 10% and a volatility of 10%. Merck & Co stock has a volatility of 20% and a correlation with the market of 0.5Q1: What is Merck’s beta with respect to the market? 0.511.5None of the above.Q2: Under the CAPM assumptions, what is the expected return? 10%14%13%7%The risk-free rate and the expected return on the market portfolio is as above. Pfizer has a stock price of $20 per share, with 10 million shares outstanding. It also has $100 million in outstanding debt, due in one year, with a yield on the debt of 6%.  Pfizer’s equity beta is 1.5. You can assume the debt has a zero beta and that there is no taxes.        Q3: What is the unlevered beta?0.511.5None of the aboveQ5: Pfizer’s Loss given default (LGD) is estimated to 50%. What is the expected probability of default implied by the cost of debt (6%)?