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Answer whether each of the following statements is correct and explain your argument.
(a) The variance of a well-diversified portfolio is zero.
(b) Under an index model, the correlation between two well-diversified portfolios is one.
(c) Well-diversified portfolios with a positive α are overpriced.
(d) An arbitrage portfolio arises when two or more security prices enable investors to construct a zero-investment portfolio that will yield a positive expected return.
Alcoa Chemical, a US company, has sold £2 million chemicals to CPL Co. Payment is due in 180 days.
Assume that all cash flows occur at end of year. SGPs pre-merger beta is 2.0 and its post-merger tax rate would be 34 percent. What is the value of SGP to Brau.
It had no debt outstanding at the end of that year. Assume that the risk premium is 5.5 percent.
Determine whether stock "A" is over or undervalued if its expected return is 25%?
1. Calculate BWP's DFL and DTL before and after the acquisition of the new machine. 2. Use the information from the previous two problems. Calculate BWP's breakeven point in units and dollars, with and without the purchase of the new machine.
What could be the recommendation and the action plan of the company?
The risk-free rate of return is 6%. Stock B has a beta of 1.0. If arbitrage opportunities are ruled out, stock A has a beta of _____.
How much is this loan worth at issuance if the market YTM for such loans is 7.125% BEY?
A mystery compound H2X has been identified to posses a molecular weight of 34 g/mol. Identify the unknown element X.
Paul Sharp is CFO of Fast Rocket Inc. He tries to determine the cost of equity financing for his company. The stock has a beta of 1.41.
an investor purchases a call option with an exercise price of 55 for 2.60. the same investor sells a call on the same
Suppose a company with a trading book valued at $100 million. The return of these assets is distributed normally with a yearly standard deviation of 25 percent.
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