According to modern finance theory

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1. The annual rate of return on Investment A has a historical standard deviation of 15%. The annual rate of return on Investment B has a historical standard deviation of 23%. According to modern finance theory, which of the following statements should be true, all else equal?

Investment A will be priced higher in the market, relative to Investment B.

Investment B will be priced higher in the market, relative to Investment A.

Investment A will have a higher required rate of return than Investment B.

Investment B will have a higher required rate of return than Investment A.

2. What is the value of a 6 year, zero coupon bond yielding 6%?

3. At the end of 2015, a firm had $25,000 of invested capital. At the end of 2016, invested capital was $26,000. Free cash flow (FCF) in 2016 was $1,500. Given a WACC of 9%, what was EVA for the year 2016?

4. An analyst wishes to compute an estimated price per share of a stock, using a P/E ratio of 16. If earnings per share are estimated to be $2.50, what should be the price per share?

Reference no: EM131878412

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