The expected return for the general market is 13.0% and the risk premium in the market is 8.9%. Tasaco, LMB, and Exxos have betas of 0.849, 0.681, and 0.581 respectively. What are the appropriate expected rates of return for the three securities?
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Suppose you own a ten year bond that pays 5% annually with a two year call that is currently trading for $95. After maturity, the bond can be called for $105. What is the annually compounded yield to maturity? What is the annually compounded yield to..
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Katherine wishes to endow a professorship in honor of her beloved mycology professor. The University's development office has prepared a proposal for her review, to wit, "The Agnew Chair in Fungus Studies," which will contribute $1 million per year, ..
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Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 4.50% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithme..
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In early 1990, Boeing Co. decided to gamble $4 billion to build a new long-distance, 350-seat wide-body airplane called the Boeing 777. The price tag for the 777, scheduled for delivery beginning in 1995, is about $120 million apiece. what is the bre..
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Hubbard Industries is an all equity firm whose shares have an expected return of 11.3%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ration is 0.71. Due to the increase risk, shareholders now e..
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Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, an auction house sold a sculpture at auction for a price of $10,261,500. Unfortunately for the previous owner, he had purchased it in..
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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..
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Kim borrows $10,000 for 3 years which requires annual payments of interest only until maturity. The rate is 10% compounded annually. Create a time line that shows all cash flows for this investment.
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A parent decides to buy a two bedroom condo for 65,000 by putting 10% down and financing the rest for 15 years at an annual rate of 3.5%. What is the monthly payment? One bedroom rented out to a roomTe for $400 a month. After 4 years, the parent Ella..
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Suppose an individual invests $40,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 4.4 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating e..
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The 6-month, 1-yr, 1.5-yr, and 2-yr interest rates are 1.75%, 2.00%, 2.25% and 2.50% with continuous compounding. Calculate the equivalent 6-month, 1-yr, 1.5-yr, and 2-yr interest rates with “quarterly” compounding.
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