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1. Assess the relevant cash flows used in forming a capital budgeting decision model. For this assignment, focus upon an expansionary problem.
2. Evaluate the cost of capital (wacc) for use in a capital budgeting decision model. Make sure to define each component of the formula. Explain how the resulting cost of capital (wacc) is used within a capital budgeting model. How can the Capital Asset Pricing Model contribute to this analysis? Explain.
3. Weigh each of the following decision metrics that can be used within a capital budgeting decision model: net present value, internal rate of return, and payback period. Explain how each metric is formed and discuss the critical value of each in forming conclusions within a capital budgeting decision model. Discuss which method has the strongest basis for being used and under which conditions each might be the preferred method.
Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfolio.
What is the expected return to this asset? What is its beta with respect to the stock? How does this relate to the breakdown of Eq. (8.7)?
How would you choose an appropriate ladder or barbell strategy without the benefit of 20/20 hindsight? What benefits does the BONDS model have over either a ladder or barbell approach to portfolio management?
Calculate the expected utility of each prospective portfolio for each of the two clients. Explain why there is a difference in these two outcomes.
If an investor is interested in maximizing expected returns, which portfolio should be chosen?- If an investor is interested in minimizing risk (as measured by standard deviation), which portfolio should be chosen?
How do your beta estimates for Walgreens and Exxon Mobil differ when using daily versus weekly data in the estimation process? Does your conclusion change about which stock is the riskiest?
How much of the riskiest security should you sell and replace with risk-free securities
1. during the past five years you owned two stocks that had the following annual rates of returnyear stock tnbsp stock
Suppose that the assets of a bank consist of $500 million of loans to BBB-rated corporations. The PD for the corporations is estimated as 0.3%.
Determine the beta of one security by regressing the returns for the share on the returns for the FT ALL Share Index and determine the co-variances for each pair of securities in the portfolio and on the basis of this information along with the vari..
The stock pays a dividend of $1 per quarter. Assume the option expires the day after the second period dividend is paid.
why does not the risk premium of stock depend on its diversifiable risk?
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