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Consider a portfolio comprised of four risky securities. Assume the economy has three states with varying probabilities of occurrence. Which one of the following will guarantee that the portfolio variance will equal zero?
A. The portfolio beta must be 1.0.
B. The portfolio expected rate of return must be the same for each economic state.
C. The portfolio risk premium must equal zero.
D. There must be equal probabilities that the state of the economy will be a boom or a bust.
Your brother wants to buy a new truck. He likes the new Toyota Tacoma with an asking price of $33,000. He will trade-in his Malibu for $4,000 and will finance any loan at 6.5% over a 5-year period. Your brother also doesn’t understand finance, and ex..
Explain how simulation works. What is the value in using a simulation approach and what is sensitivity analysis and what is its purpose?
Farmland Inc. produces 80,000 units of product A at a total cost of $2.4 million. Total fixed costs are $1 million. If the company increases production by 25% and uses a 40% markup the price per unit will be:
Kaelea, Inc., has no debt outstanding and a total market value of $74,000. Earnings before interest and taxes, EBIT, are projected to be $8,100 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 21 perce..
which is better current ration? is it possible to run a company with a negative cash flow for: what is the future value of :
Show Calculations and formulas- F.Q Loans Inc. offers "five for four, or I knock on your door." This means you get $4 today and repay $5 when you get your paycheck in 1 week (or else). Whats the effective annual return F.Q earns on this lending busin..
Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 11.7 % 20.6 % Small-company stocks 16.4 33.0 Long-term corporate bonds 6.3 9.6 Long-term government bo..
Consider a call option on a stock selling for $30 per share with a $32 exercise price. The stock's standard deviation is 36% per year; the option matures in 6 months; and the risk-free interest rate is 4% per year. Find the risk neutral probability a..
Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $60,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $2,700 every six months over the subsequent eight years, and ..
The price of gold is currently $1,400 per ounce. The forward price for delivery in one year is $1,450. An arbitrageur can borrow money at 2% per annum. What should the arbitrageur do? Assume that the cost of storing gold is zero and that gold provide..
Morten Food Products, Inc. is a regional manufacturer of salty food snacks. The firm competes directly with the national brands including Frito-Lay, but only in the U.S. Southeast. What level of incremental sales should the company analyst attribute ..
Many public policy experts argue that tax codes should be revised and simplified, so that all firms pay a basic flat rate regardless of who they are or where they d business. What do you think?
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