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Part 1
The expected return of Yahoo is 12% with standard deviation of 20% and the expected return of Google is 15% with standard deviation of 25%. The correlation coefficient of Yahoo and Google is -1. What should be the risk free rate if there is no arbitrage opportunity?
Part 2:
Suppose that 1 year zero rate is 1% and 2 year zero rate is 2%. Consider a risk free bond with maturity of two years and a face value of $100 that has an annual coupon rate of 3%. Let Y denote the yield to maturity for this bond. Write down an equation whose solution provides you the yield to maturity for the bond (you do not need to solve the equation). All rates including the yield are continuously compounded.
Stock Y has a beta of .98 and an expected return of 10.30 percent. Stock Z has a beta of .80 and an expected return of 9 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
Suppose the unbiased expectations theory is true. Further, we observe yields on U.S. Treasury securities today and see the following:
A 15-year municipal bond was issued 5 years ago. Its coupon interest rate is 8%, interest payments are made semi-annually, and its face value is $1,000.
Summer Tyme, is considering new 3-year expansion project that requires initial fixed asset investment of $3.132 million.What is project's year 3 net cash flow?
Compute the year 30 and 45 withdrawal amounts in nominal terms.
According to APT, what is the portfolio's equilibrium expected return?
As Mike was walking through Roger’s house, he noticed some watermarks on the ceiling and asked about the roof.
Today the Canadian dollar spot rate at $.90. What do you think the spot rate of the Canadian dollar will be in one year?
His loan cost was 16% annually because of his bad credit score. He promised to repay the loan in 5 years on a quarterly basis.
how you manage your cash or money on a day-to-day basis will impact whether your long-term financial objectives will be
Which bond would an investor prefer if her marginal tax rate is lower than in (a)? Explain.
Suppose that an investor sells 400 shares short at $50 per share. The initial margin is 50% and the maintenance margin is 30%. After 125 days, the investor purchases the shares for $40 and closes the short position. At what price would the investor r..
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