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Using Yahoo! Finance find the value of beta for your reference company (Apple, INC.)
a. What is the estimated beta coefficient of your company? What does this beta mean in terms of your choice to include this company in your overall portfolio?
b. Given the beta of your company, the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find out what is the present 'cost of equity' of your company? Explain what is the meaning of the 'cost of equity'.
c. Choose two other companies, look up their "Beta" and report the names of these companies and their betas. Suppose you invest one third of your money in each of the stocks of these companies. What will the beta of the portfolio be? Given the data in (b), what will the Expected Rate of Return on this portfolio be? Do you feel that the three-stock portfolio is sufficiently diversified or does it still have risk that can be diversified away? Explain.
Nelson purchased 1,300 shares of stock for $12.75 a share. The initial margin requirement is 70% and the maintenance margin is 40%.
Illustrate out the term underlying as it relates to derivative financial instruments? Write down the main distinctions between a traditional financial instrument and a derivative financial instrument?
Describe the date Alice must start taking distributions from the account.
Determine which id not constitute a benefit to the investor of diversifying internationally?
DNA Corporation issued $4,000,000 in 8%, 10-year bonds on February 1, 2010, at 115. Semiannual interest payment dates are January 31 & July 31.
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Susan owns a Van Gogh painting valued at 10 million dollar. In addition to painting, Susan owns approximately $15 million of other assets.
Describe your recommendations for each of these three companies. Consider the nature of their business, the riskiness of company, and advantages and disadvantages of debt over equity financing in your answers.
If resulting profits are repatriated to production unit in Canada monthly, what risk does this production unit face? How might it hedge this risk?
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