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Your friend is facing an important decision. She was recently hired by a large bank, First Global, as a junior associate. Her primary responsibility is reviewing loan applications for completeness and conducting an initial analysis of the credit information. She is very knowledgeable about loans; however, she has come to you with a dilemma. The decision she is facing does not involve a work-related task, rather it involves questions regarding how she should set up her retirement account. She wants to get started investing early in life as she understands the power of compound interest, but she is unclear about where she should allocate her money. She has heard that you have a solid understanding of investments, particularly the risk and return of securities. She has narrowed her options down to three choices and would like your input. The first option is to invest in a mutual fund that is comprised of a wide variety of common stock from large, domestic firms. The second option is to invest in a low-risk government security, such as U.S. Treasury bills (T-bills). The third option is to invest in the common stock of First Global. Your friend is very worried about losing her money and would like to keep her investment choice simple. For that reason she is considering choosing to invest in First Global common stock as she has calculated an average return for the stock that seems acceptable. Currently, your friend has £5,000 to invest.
1. Based solely on the information that you have at this point, what advice would you give your friend regarding her choice of investment? What recommendations would you have for her? How would you explain your choice?
Imagine that two assets have the same average return of 10 percent and the same standard deviation of 30%. Would the average return on a 50-50 portfolio of these two stocks be equal to, greater than, or less than 10 percent?
Find the accumulated value of this annuity if the effective annual interest rate is 8%.
What is the price of a European call option with strike price $75 that will expire in 3 months?- What is the price of the corresponding European put option?
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What is the difference in dollars received that was caused by the delay?
A company's common stock has a beta of 2.1. If the risk-return is 2.43%, and the market risk premium is 7.79%, calculate the required return on the company's common stock.
Given that a firm's return on equity is 22 percent and management plans to retain 37 percent of earnings for investment purposes, what will be the firm's growth rate? If the firm decides to increase its retention rate, what will happen to the value o..
You have just noticed in the financial pages of the local newspaper that you can buy a bond ($1000 par). IF the coupon rate is 3.9% with annual interest payments, and there are 13 years to maturity, what should the purchase be valued at if your requi..
The Operations Analyst for a company is studying the inventory stocking policy for a product (#A123). His records show that the demand per day is normally distributed with a mean of 210 and a standard deviation of demand of 5. Lead time is 4 days. Th..
Akeya Equipment has 120,000 non-callable semiannual bonds outstanding with a 8 percent coupon interest and par value of $1,000. The bonds have 15 years to maturity and sells for 95 percent of the par. The company’s average tax rate is 35%. What is th..
The financial areas of decision-making include the areas of capital acquisition and capital planning.
You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 35-year mortgage loan for 85 percent of the $3,500,000 purchase price. The monthly payment on this loan will be $17,600. What is the APR on this loan?
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