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Emmy is analyzing a two-stock portfolio that consists of a utility stock and a commodity stock. She knows that the return on the utility stock has a standard deviation of 40 percent and the return on the commodity stock has a standard deviation of 30 percent. However, she does not know the exact covariance in the returns of the two stocks. Emmy would like to plot the variance of the portfolio for each of three cases—covariance of 0.105, 0, and –0.105—in order to understand what the variance of the portfolio would be for a range of covariances. Do the calculation for all three cases (0.105, 0, and -0.105), assuming an equal proportion of each stock in the portfolio. Case 1, σ1,2 = 0.105: (Round answer to 4 decimal places, e.g. 0.0768.) Variance Case 2, σ1,2 = 0.0: (Round answer to 4 decimal places, e.g. 0.0768.) Variance Case 3, σ1,2 = -0.105: (Round answer to 4 decimal places, e.g. 0.0768.) Variance
Michelle is attending college and has a part-time job. Once she finishes college, Michelle would like to relocate to a metropolitan area. She wants to build her savings so that she will have a nest egg to start her off. Michelle works out her budget ..
Managers have some flexibility in setting the estimated useful lives of depreciable assets. Explain how this could allow managers to manipulate earnings. Would depreciation be considered a variable cost or a fixed cost?Explain how a change in sales p..
A firm is considering purchasing a machine that costs 73,000. It will be used for six? years, and the salvage value at that time is expected to be zero. The machine will save 34,000 per year in? labor, but it will incur 13,000 in operating and mainte..
CALCULATE and EXPLAIN: ROI, Acid Ratio (Current Ratio), and Debt to Equity Ratio.
Chandeliers Corp. has no debt but can borrow at 6.4 percent. The firm’s WACC is currently 8.2 percent, and the tax rate is 35 percent. If the firm converts to 35 percent debt, what is the company’s WACC? If the firm converts to 50 percent debt, what ..
What is the meaning of the following sentence: "Amortization affects the amount of interest expense." How does amortization of premium affect the amount of interest expense? How does amortization of discount affect the amount of interest expense?
Keller Cosmetics maintains an operating profit margin of 8.20% and a sales-to-assets ratio of 3.30. It has assets of $540,000 and equity of $340,000. Interest payments are $34,000 and the tax rate is 35%. What is the return on assets? What is the ret..
Suppose you calculate a project's net present value to be $30 million. If the required outlay for this project is $100 million, what is the project's profitability index?
Both calculations are based on an effective annual interest rate of i.
Interest on money market investments are pure discount securities. These securities are often quoted on a discount basis. Briefly describe what “pure discount security” means. Suppose you were to by a taxable bond yielding 5.32% and a non-taxable bo..
Assuming no preferred stock, common dividends paid plus the increase in retained earnings equals:
Apocalyptica Corporation is expected to pay the following dividends over the next four years: $6.90, $17.90, $22.90, and $4.70. Afterwards, the company pledges to maintain a constant 6.00 percent growth rate in dividends, forever. Required: If the re..
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