Reference no: EM13858742
1. Below you are presented with hypothetical stock prices for two different stocks over a ten year period.
| Year |
Stock Price A |
Yearly Return (%) |
|
Stock Price B |
Yearly Return (%) |
|
|
|
|
|
|
| 1 |
$ 100 |
|
|
$ 65 |
|
| 2 |
$ 112 |
12.0% |
|
$ 70 |
|
| 3 |
$ 118 |
|
|
$ 79 |
|
| 4 |
$ 106 |
|
|
$ 83 |
|
| 5 |
$ 110 |
|
|
$ 80 |
|
| 6 |
$ 91 |
|
|
$ 95 |
|
| 7 |
$ 105 |
|
|
$ 94 |
|
| 8 |
$ 125 |
|
|
$ 108 |
|
| 9 |
$ 155 |
|
|
$ 120 |
|
| 10 |
$ 185 |
|
|
$ 125 |
|
a. Calculate the yearly returns for both stocks
b. Calculate the average yearly returns:
c. Calculate the standard deviation:
d. Which if these stocks was less risky? Explain
2. Assume the risk-free rate is 3.5%, the beta of a company is 0.8 and the market-level return is 12%.
a. Provide the CAPM equation and use it to solve for the required return of the company's equity.
CAPM Equation:
Required Return:
b. Now assume the beta is 1.6. What is the required return of the company's equity?
Required Return:
c. What happens as beta increases?
3. Nessumsar compay develops educational materials. It has a pre-tax cost of debt of 8.0% and a cost of equity of 11.0%. It has a marginal tax rate of 40%, $50 million of debt and $100 million of equity.
a. Calculate the company's overall cost of capital.
b. What happens to the cost of equity as more debt gets used relative to equity? Why does this occur?
|
How to avoid aircrafts accidents
: How to avoid aircrafts accidents
|
|
About gross domestic product-income generation
: Write a essay about 300-400 words about Gross Domestic Product of Viet Nam : analysis of Viet Nam economy's GDP composition and growth over time, as well as an investigation of Viet Nam's basis for income generation and any and all constraints to gro..
|
|
Distinguishes trademark from another symbol or group of word
: Is it necessary to register a trademark? What are the benefits to registering a trademark? What distinguishes a trademark from another symbol or group of words?
|
|
Field of empirical economic research offer virtual unanimity
: Few fields of empirical economic research offer virtual unanimity of findings. The authors discuss the role of leakages in determining the impact of sports teams on the local economy. What are they talking about? Be specific so as to convince me that..
|
|
Calculate the companys overall cost of capital
: Calculate the companys overall cost of capital - What happens to the cost of equity as more debt gets used relative to equity?
|
|
Truss structure compute
: For the following truss structure compute: a. All support reactions
|
|
What is your ethical obligation
: Many television shows, movies, and songs can be downloaded for free on the Internet. Much of this material is copyrighted and was expensive to produce. Much of it is available for a fee through a legitimate site. Should you pay to download an episode..
|
|
Label the axis and least two points on the budget line
: A farmer’s field grows 30 bushels of corn and 10 bushels of beans. The farmer can either consume these crops herself or trade them, with one bushel of beans being traded for one bushel of corn. Graph the farmer’s budget which is the possible combinat..
|
|
Considering the costs of meeting various standards
: Certain environmental laws prohibit EPA from considering the costs of meeting various standards when the levels of the standards are set. Is this a good example of “putting first things first” or simply an unjustifiable waste of resources? Why?
|