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You are an investment officer at Pegasus Securities and are preparing for the next meeting of the investment committee. Several committee members are interested in reviewing two asset pricing models – the capital pricing model (CAPM) and the arbitrage pricing theory (APT)- and their use in portfolio management and stock selection.
a. Describe both the CAPM and the APT, and identify the factors(s) that determines returns in each.
b. “The APT model is more general than the CAPM”. Explain how this observation has meaning in the stock selection process.
Compare the Return on Equity (ROE) of Southwest Airlines vs Allegiant Travel. For a 12 month period, Southwest was at 30.86% and Allegiant was at 68.56%, while the industry average was 55.43%.
Assume a 25-year, $490,000 mortgage with a rate of 7.2 percent. 9 years into the mortgage, rates have fallen to 6.2 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate?
DMA Corporation has bonds on the market with 17.5 years to maturity, a YTM of 6.4 percent, and a current price of $1,037. The bonds make semiannual payments and have a par value of $1,000. What must the coupon rate be on these bonds?
Briefly describe the differences among international bond, bank and equity markets. Would you support an MNC that favors financing through bonds issues or would you rather support one that favors financing through stock issues?
A company using activity based pricing marks up the direct cost of goods by 0.25 plus charges customers for indirect costs based on the activities utilized by the customer. What will the customer be charged?
Aberdeen Company has the following capital structure. The risk-free rate is 5% and the expected return on the market is 12%. The tax rate of Aberdeen is 32%. Find the WACC of Aberdeen.
Please propose a plan for protecting your intellectual property. What is your product or service? Give a brief description.
Filkins Fabric Company is considering the replacement of its old, What is the equivalent annual annuity for each machine?
Management consultants (McKinsey, Accenture, etc.) are generally hired to increase the intrinsic value of the firm. List the critical two elements—with direction—of the value maximization template on which a consultant may focus to accomplish this ta..
Aberdeen Corp. uses activity-based costing system with three activity cost pools. The following information is provided: Costs: Wages and salaries $ 211,000 Depreciation 115,000 Utilities 120,000 Total $440,000 Activity Cost Pools Assembly Setting Up..
What are the company's capital structure weights on a book value basis? What are the company’s capital structure weights on a market value basis?
You have forty years until you retire. Today you have no investments. At the end of the year, you will make the first of 40 annual investments of $5,000 in an account that returns 7%, how much will you have on the day that you make the last of your f..
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