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Combine two bio-tech stocks into a portfolio and the risk of that portfolio is not much different than the risks of the stocks themselves. Combine a breakfast cereal stock with an automotive stock and the portfolio risk is much less than the risks of the stocks themselves. Discuss the statistical measure that explains this phenomenon.
The loan requires quarterly payments. What is the Effective Annual Rate (EAR) of this rate?
Consider the following capital market: a risk-free asset yielding 0.75% per year and a mutual fund consisting of 70% stocks and 30% bonds. The expected return on stocks is 10.75% per year and the expected return on bonds is 3.25% per year. What is th..
Assume that under the terms of a cross-currency-interest-swap which is between Qantas and General Motors and arranged by us (the bank) the following: the notional principal is $100,000,000 (AUD) for six years, and the exchange rate is 1 USD is equal ..
You have been asked to value a stock. Stock AAA is expected to pay a dividend of $2 next year (t=1) and $2.20 the year after (t=2). After the end of the second year, stock or equity analyst expect dividends to grow at a constant rate of 4.0% per year..
A call option on the stock of Bedrock Boulders has a market price of $8. The stock sells for $29 a share, and the option has a strike price of $24 a share. What is the exercise value of the call option?
The common stock of Buildwell Conservation & Construction, Inc., has a beta of .95. The Treasury bill rate is 6%, and the market risk premium is estimated at 10%. BCCI’s capital structure is 35% debt, paying a 7% interest rate, and 65% equity. Buildw..
You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and single, has recently retired from IBM. Differentiate between accrual accounting and cash basis. Based on the type of business and the..
Suppose that the inflation rate is expected to be 3% in the near future. Using the historical data provided in this chapter, what would be your predictions for: a. the t-bill rate b. The expected rate of return on the Big/Value portfolio? c. The risk..
You expected the Ali Baba stock price to rise over the next six months. Now, the current price is $90. To utilize your expectation, you bought 5 call option contracts with strike price of $91 on Ali Baba stock. The call option price is $6 per option...
If the first-year interest rate is 2% and the second year interest is 3%, what is the 2-year total interest rate? - What was the project's rate of return after the first year?
Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estima..
Baba's Warm and Cozy Knitting Supply is considering creating a new line of mittens. The managers think that the new equipment and supply of yarn will cost $340,000. They expect to earn $60,000 the first year, $100,000 the second year, $100,000 the th..
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