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Problem Sets and Solutions For FNCE 612

Alex Edmans Wharton School, University of Pennsylvania aedmans@wharton.upenn.edu Fall 2013

2460 Steinberg Hall - Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104-6367. A substantial amount of this material is taken from lecture notes by Professor Simon Gervais, who taught this course for many years at Wharton. I am extremely grateful to Simon for allowing me to use his notes. I also thank Indraneel Chakraborty, James Park and Laila Shabir for their help in typesetting this packet.

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Contents

1 Problem Sets - 612 . . . . . . . . . . . . . . . . . . . . . 1.5 Diversi…cation, Risk and Return . . . . . . . . . . . 1.6 The Capital Asset Pricing Model . . . . . . . . . . 1.7 The Valuation of Stocks . . . . . . . . . . . . . . . 1.8 Capital Budgeting Under Uncertainty . . . . . . . . 1.9 Dividend Policy . . . . . . . . . . . . . . . . . . . . 1.10 Debt Policy . . . . . . . . . . . . . . . . . . . . . . 1.11 Interaction of Investment and Financing Decisions . 1.12 Option Pricing . . . . . . . . . . . . . . . . . . . . 2 Solutions to Problem Sets - 612 . . . . . . . . . . . . . . 2.5 Diversi…cation, Risk and Return . . . . . . . . . . . 2.6 The Capital Asset Pricing Model . . . . . . . . . . 2.7 The Valuation of Stocks . . . . . . . . . . . . . . . 2.8 Capital Budgeting Under Uncertainty . . . . . . . . 2.9 Dividend Policy . . . . . . . . . . . . . . . . . . . . 2.10 Debt Policy . . . . . . . . . . . . . . . . . . . . . . 2.11 Interaction of Investment and Financing Decisions . 2.12 Option Pricing . . . . . . . . . . . . . . . . . . . . 3 Practice Exams . . . . . . . . . . . . . . . . . . . . . . . 3.1 Midterm - Sample A: Questions . . . . . . . . . . . 3.2 Midterm - Sample A: Solutions . . . . . . . . . . . 3.3 Midterm - Sample B: Questions . . . . . . . . . . . 3.4 Midterm - Sample B: Solutions . . . . . . . . . . . 3.5 Final - Sample A: Questions . . . . . . . . . . . . . 3.6 Final - Sample A: Solutions . . . . ....