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Consider an economy where two factors are sufficient to describe the returns on common stocks. Stated formally, we have: E(ri)=rf+bi,1 f1+bi,2 f2, The following table gives the estimated sensitivities of stocks A and B to the two factors, as well as their expected returns. Stock , , A 0.7 1.4 12.7% B 2.1 0.7 17.6% The risk-free rate of return is 5%. Suppose A and B are priced consistently with the two-factor APT above. (a) Calculate the risk premiums of the two factors ( and ). (b) Suppose there is another stock, C with sensitivities , = 0.3 and , = 0.8. Your analysis shows that holding c your expected return will be 10%. Is c is overvalued, undervalued or correctly priced based on APT?
If 400,000 people each receive an average refund of $2,400, based on an interest rate of 4 percent, what would be the lost annual income from savings on those refunds? Assume the savings could have been invested for the entire year
The Cambell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,080,000, and it would cost another $22,500 to install it. What is the Year 0 net cash flow? What is the additional Year 3 cash fl..
Smart Solutions Inc. is evaluating a capital project for expansion.
Paul bought stock for $2,000 and sold the same stock for $2,300. What is Paul’s gain/loss reported on his tax return?
When you graduate you have $15,000 on your credit card which charges an APR of 14% compounded monthly. The credit card company tells you that your minimum payment is $232.90. If you make the minimum payment every month, After an injury, you win a law..
A child is born this year. On it's first birthday [after 1 year], the parents decide to deposit an equal annual contribution to the college fund that will earn 8%, compounded annually. How much should they deposit at the end of each year so that it w..
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.0 million. The equipment will be depreciated straight line over 6 years to a value of zero, but in fact it can be sold after 6 years fo..
Why did Microsoft decide in 2004 to double its cash dividend and buy back up to $30 billion of the company's stock over the next four years?
Find the amount to which $200 will grow under each of these conditions. Why does the observed pattern of FVs occur?
Evaluate internal control risk over purchases using “low,” “moderate,” or “high” risk categories.
Draiman, Inc., has sales of $590,000, costs of $268,000, depreciation expense of $68,500, interest expense of $35,500, and a tax rate of 40 percent. The firm paid out $38,500 in cash dividends and has 45,000 shares of common stock outstanding. find e..
what is the present value of the annuity?
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