FIN 645 Final Exam (UMUC)

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QUESTION 1.
The following quotation appeared in theFortune magazine I have never asked to serve on a
corporate board, never even hinted at wanting to be on one. And I have never asked to
be on a compensation committee. I suspect that the reason Ive been put on so many is
that word gets around that I believe in paying people very, very well I cannot sit and
say to you what the right compensation number is. Thats the judgment call, the
business judgment call. Thats what a board of directors does What I know most of all
is that when I see extraordinary effort and results out of a CEO, you cant pay him
enough.
Evaluate the comments made by this particular director. Make sure your responses
are well organized and documented, using references/examples from any of
the assigned readings on the topic for this class. Be well organized in your
writing.
QUESTION 2.
Given the new economic and market realities prevailing since the 2008 great recession including
employment opportunities for yourself as a business executive first list, and then explain in needed
details the top four (4) Behavioral Finance lessons that you learned in this class that can be of value
to you going forward. I emphasize going forward because my goal in this question is to see
how you can apply the lessons learned in this course to make decisions that may face you at work
now or in the future. This also means you must answer this question from the perspective of your
job; your present job or a job that you envision you may have later on.
Make sure you answer this question in light of the post-2008 economic and financial
realities. Dont be afraid to take risk in answering this question; it may pay off in both
grading and your future experiences! :-)
QUESTION 3.
Say the level of the market as measured by the Dow Jones Industrial Average is currently at 12,000.
A forecaster has made a prediction of 13,300 for the level of the market in one year, along with a
95% confidence interval whose lower bound is 12,500 and whose upper bound is 14,500. You know
from experience that this particular forecaster tends to be both excessively optimistic and
miscalibrated. Describe how you might debias this individual. Give a numerical example (making up
relevant numbers as appropriate).
QUESTION 4.

Shefrins Chapter 10 (pp 162-163) mentions AT&Ts acquisition of NCR. In the five months that
followed AT&Ts announcement that it planned to acquire NCR, the cumulative abnormal return over
the negotiation period for this merger, 11/01/90 05/07/91 was 13.33% for AT&T and +120.29% for
NCR. At the beginning of this period, AT&Ts stock price was $34 and it had 1.092 billion shares
outstanding. In contrast, NCRs stock price was $47.25 with 64.5 million shares outstanding.
On May 7, 1991, how much value did the market judge that AT&T would destroy by
acquiring NCR?
To answer this question, first fill in the table that begins in cell B3 in the worksheet ATT
NCR of the spreadsheet Chapter 10 answer template.xls (this is attached for
convenience) and then briefly discuss your response/solution in a paragraph or two on
the same worksheet or in your Word file.