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You just received your annual performance statement from your investment advisor. The statement indicates that your portfolio return for the past year was up 25%. In addition, you noticed, within the statement, that the S&P rose 18%. Also, the statement reflected that your portfolio had a beta of 1.25. Further on, you noticed that the risk-free rate of return was 1%. To your dismay, the statement did not provide what the risk-adjusted rate of return was for the year. Therefore, you called your investment advisor for a clarification. The investment advisor provides you with the risk-adjusted rate of return. Are you happy with the risk-adjusted portfolio performance? Explain fully. What is the portfolio’s Jensen Measure?
Walgreen Company (NYSE: WAG) is currently trading at $48.75 on the NYSE. Walgreen Company is also listed on NASDAQ and assumes it is currently trading on NASDAQ at $48.50. Does an arbitrage opportunity exists and if so how would you exploit it and ho..
Hull Baking Company uses 250,000 lb of sugar annually in its cakes and pastries. The company can order the sugar in 100 lb bags, at the cost of $19.50 per bag, delivered. The cost of preparing and sending an order is $50. The storage and handling cos..
You deposit $500 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years?
Webster Global Partners (WGP) is evaluating an investment in MiCasa, SA., a distributor of home appliances. As with any venture capitalist, they seek to sell out after 5 years. WGP estimates a free cash flow multiple of 2.1. Free cash flow in year 5 ..
A computer dealer offers to lease a system to you for $50 per month for two years.
A mutual fund manager has a 30 million portfolio with a beta of 1.5. The risk free rate is 4% and the market risk premium is 6%. The manager expects to receive an additional 5 million, which she plans to invest in a number of stocks. After investing ..
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,300,000 and will last for 6 years. Variable costs are 35% of sales, and fixed costs are $1,600,000 per year. Machine B costs $5,040,000 a..
A seminar series has set up costs of $3,000; a rent per event of $1,000; plus a variable cost of $30 per attendee for food, supplies, and refreshments. The price of the seminar admission is $100 per person. What is the break even in a) units {people}..
A one-year call option on a stock with strike price of $45 cost $5 and a one-year put option on a stock with strike price of $35 cost $3. A trader shorts two put options and shorts one call option. What is the breakeven stock price, below which the t..
The ________ of a firm is the amount of time that elapses from the point when the firm inputs material and labor into the production process to the point when cash is collected from the sale of the finished product that contains these production inpu..
The Johnson Company has been very successful in the past five years. Over these years, it paid common stock dividend of $ 3 in the first year, $3.20 in the second year, $4.2 in the third year, $4.5 in the fourth year and its most recent dividend was ..
What is the problem with using a constant discount rate for all projects? Explain in the context of both all-domestic and international companies.
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