FIN 645 Midterm Exam Summer 2015

| June 2, 2016

Question
1

Behavioral Finance- FIN 645

Midterm Exam; Summer 2015; D

Caution. Please note this is an individual exam only- and not a team or group effort. With 25% of the class grade at

stake, this test also provides a major opportunity for all of you to reap proper rewards based on your hard work and

time put in for this class. Additionally, all relevant UMUC policies- and especially those related to Academic

Honesty- will be in full force. So please keep that in mind at all times as I always take the extra steps, including use

of any needed software available, to make sure that the work submitted is the student’s own original work and

based on what has been taught in this course. The goal for all this is to protect and reward your hard work and

prevent any grade dilution as a result of any possible wrongdoing even by one individual.

INSTRUCTIONS- Follow ALL instructions; otherwise you may lose points ranging from just a few

percentage points to 100% of the grade for this test:

1. Answer all the following three (3) questions.

2. Where and when DETAILED CALCULATIONS are involved, you must use one EXCEL file. Note: your

Excel worksheet must be built and populated in such a way that I can follow and trace all your formulas and

calculations. Do NOT use Excel for essay-type, non-quantitative questions; otherwise significant points

could be lost.

3. For any other question you must use WORD ONLY. No other formats like PDF will be accepted. To

repeat, do not use Excel for essay-type (qualitative) questions; unless such questions have significant

quantitative components in which case you can use Excel just for the quantitative part(s).

4. As a General Rule in grading, I am very much interested in seeing in your exam responses the extent to

which you have utilized your assigned textbooks and/or any other assigned materials. This means including

materials obtained from non-class sources like the Internet or outside sources will receive distant secondary

consideration in grading your work; if any at all. So all be careful.

5. To further elaborate and emphasize, at submission time:

a. You can ONLY submit a maximum of two (2) files for the entire exam; one Excel file used ONLY

for quantitative questions and one Word file for the rest of the exam. I will ignore extra files if you

have more than the two files allowed for this test. All other formats like PDF, etc. will also be

totally ignored.

b. No emailed exams will be accepted or graded; except in case of verifiable natural emergencies and

power/Internet outages. If you face any problem at the time of upload, you must call UMUC’s 24-

hour Tech Support right away for any and all such problems.

6. There is a maximum of 250 points for this test. Scores for each question are shown at the end of each

question. For qualitative questions, maximum allowed pages are also given at the end of each question.

7. As stated in the syllabus, you will have until 11:59 PM EST on Sunday, 6/28, to submit your answers

via the related Midterm icon that you see under the Assignments tab in your class. To submit, after clicking

on the Assignments tab and then the Midterm icon, click on “Add a File” and follow instructions. If any

tech issues call the 24-hour Tech Support using the contact info given in your class. Anyway, the

deadline gives you ample time for the exam even if you have more than one exam to attend to.

8. Finally, given questions regarding the exam bring even more questions; and this would confuse

some other students, treat and handle this exam “as is”. This means:

a. You should trust the info/data given for each question and then come up with the best

possible answers for the test. In improbable cases when there are general problems with

some questions, like typos, etc, I can always account for them- and if legitimate, give due

credit to all at the time of grading.

b. I must, and I will, ignore any emails or posts in the classroom from you seeking

clarifications on any part of the exam. I must be fair to ALL of my students and that is why

I have this “as is” policy as stated in above. Hope you understand.

Best wishes to all of you!

2

QUESTION 1.

Important Note: This question asks more or less a similar question that had already been asked and

discussed in one of the homeworks. However, given this is an exam question I expect from you a very indepth

analysis of the question and utilizing practically whatever you have learned so far in this class about

the topic on hand; including and especially all the conceptual and quantitative materials covered in

chapters 2 and 5 of Shefrin. Now to the question.

According to Yahoo Finance Applied Materials, Inc.’s stock (AMAT) closed at $19.96 on June 23,

2015: http://finance.yahoo.com/q?s=AMAT&ql=1 .

Discuss whether the above stock was efficiently priced at the time of closing on the stated date.

For consistency in your analysis, use ONLY Yahoo Finance’s data and other given information for the

said company available at the above URL. You can use any and all pieces of information and data from

the above URL to build your case. Make sure your responses to this question include both quantitative as

well as qualitative analysis.

Note: Points will be taken off for responses that lack organization and order.

Maximum pages: 3 pages, double-space, size 12. No page limit on your Excel calculations.

Grade: 100

QUESTION 2.

Part A. As a CFO-in-training, that is as one who is being trained for a future CFO job where taking FIN 645 is part

of such training, and solely based on what you have seen up to this date, explain what you have learned in this

course which could help you in your future job as a CFO. Explain in needed details. If you discuss specific lessons,

strategies, tools, and or methods, cite the specific page(s) of your books as reference. Hint: First briefly outline

what a typical CFO does and then answer the question as asked and to the best of your ability and knowledge at this

point. (50/100 points for this part)

Part B. As a securities trader, and based on what you have seen up to this date, explain what you have learned in

this course which could help you in your trading strategies. Explain in needed details. If you discuss specific lessons,

strategies, tools, and or methods, cite the specific page(s) of your books as reference. In your discussion, make sure

to cover both market efficiency issues and relevant behavioral finance phenomena. Hint: Traders are mainly

concerned about short and not long term. (50/100 points for this part)

Note: Points will be taken off for responses that lack organization and order.

Maximum pages: 3-4 pages, double-space, size 12. Not page limit on any supporting reference page, table, graph,

or exhibit.

Grade: 100

QUESTION 3.

As you know by now, traditional finance theory defines and operationalizes risk in terms of standard

deviation and beta. In this class, you have also learned that Asset Pricing models like CAPM which were

built on concepts like beta along with Market Efficiency assumptions have not done well in the real world

either. Answer the two following questions based on what you have learned in this class:

A. Have behavioral economists been able to improve upon the notion of risk and or pricing models

like beta and CAPM? Explain your response in needed details.

B. Do we now have a better understanding or risk in the real world? Explain your response in needed

details.

Note: Points will be taken off for responses that lack organization and order.

Maximum pages: 2 pages, double-space, size 12. Not page limit on any supporting reference page, table,

graph, or exhibit.

Grade: 50

END!

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