Difference in security market line and capital market line

Assignment Help Financial Management
Reference no: EM131054686

Answer each question below as clearly and succinctly as you can.

a. Explain the difference between the Security Market Line (SML) and the Capital Market Line (CML).

b. The treasury department of a large Fortune 500 corporation would like to estimate the company’s cost of capital in order to make capital budgeting decisions. Should they use the SML or the CML? Explain.

c. The new treasurer of a large, east coast university in interested in evaluating whether the university’s endowment portfolio has been effectively managed. Should she compare its performance to the CML or the SML? Why?

Reference no: EM131054686

Questions Cloud

Considering a new project with perpetual cash inflows : Blue Water Boats is considering a new project with perpetual cash inflows of $435,000, cash costs of $310,000, and a tax rate of 35 percent. The firm plans to issue $250,000 of debt at an interest rate of 7.3 percent to help finance the initial proje..
Riskless rate of return-maximizing her expected return : For all parts of this question, assume the following: The CAPM holds. The riskless rate of return is 3%. The market portfolio has expected rate of return of 18% and standard deviation of 20%. 1. KrustyKorp stock has an expected rate of return of 2% p..
Tax bracket-calculate the tax associated : If Cindy Young is single and in the 28 percent tax bracket, calculate the tax associated with each of the following transactions. (Use the IRS regulations for capital gains in effect in 2013.)
What is the yield to maturity on the bonds : Short Term Inc. has issued zero-coupon bonds that mature in one year. The returns from holding these bonds have a beta of 0.25. There is a chance of 70% that the bonds will pay full value, and a chance of 30% that they will only be worth 60 cents for..
Difference in security market line and capital market line : Explain the difference between the Security Market Line (SML) and the Capital Market Line (CML). The treasury department of a large Fortune 500 corporation would like to estimate the company’s cost of capital in order to make capital budgeting decisi..
What is projects discounted payback : Skyumeal Inc. is considering a project that has the following cash flow data. What is the project's discounted payback if the required rate of return for the project is 10 percent? Should the company accept or reject the project if the required disco..
Considering implementing an activity-based costing system : Greenwood Company manufactures two products—15,000 units of Product Y and 7,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that all..
Relative value trade and indexing : How much to allocate between stocks and bonds is an asset allocation question. Relative value trade is: Indexing is:
What is payback period for each project-cash flow : Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$417,000 –$36,000 1 48,000 19,600 2 58,000 14,100 3 75,000 14,600 4 532,000 11,400 The required return on these investments is 13 percent. What is the payback..

Reviews

Write a Review

Financial Management Questions & Answers

  What is the annualized yield on the dollar deposit

The treasurer of a U.S company has $1,000,000 to invest for 30 days. A 30-day euro deposit yields 2.00 percent. The present exchange rate of € is $1.1550. What is the annualized yield on the dollar deposit in the euro market if the exchange rate of €..

  Explain briefly how you would interpret characteristic lines

Write down expressions for the characteristic lines for securities A and B. Draw sketches of the characteristic lines for securities A and B. Explain briefly how you would interpret the characteristic lines.

  What is the total intrinsic value of the bond

Suppose that Firm Y has bonds outstanding that mature in 12 years and offer a 6.5 percent annual coupon rate, paid semiannually. Market required returns on similar bonds are 6.25 percent annual. What is the return of principal component of this bond’..

  Capital structure based on current market values

Capital Co. has a capital structure, based on current market values, that consists of 43 percent debt, 8 percent preferred stock, and 49 percent common stock. If the returns required by investors are 11 percent, 13 percent, and 18 percent for the deb..

  Interests were affected by hidden obsolete inventroy

Before finalizing these plans, two stores were remodeled as a test. Lisa Lee, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales gro..

  Globalisation and the deregulation of financial markets

Globalisation and The deregulation of financial markets the showcase - Globalisation has taken an important place in our lives especially the deregulation of financial markets.

  Shares of cumulative preferred stock outstanding

Enterprise Storage Company has 440,000 shares of cumulative preferred stock outstanding, which has a stated dividend of $7.75. it is six years in arrears in dividend payments. How much in total dollars is the company behind in its payments? $20,460,0..

  What was the addition to retained earnings

In 2012, Latham Steel Fabrication has sales of $546,000, costs of $265,000, depreciation expense of $37,000, interest expense of $15,000, and was subject to a tax rate of 32 percent. Latham paid $52,260 in cash dividends. What was the addition to ret..

  What is the value for average daily credit sale

Martin electronics has an accounts receivable turnover equal to 15 times. If accounts receivable are equal to 80,000, what is the value for average daily credit sale?

  How does a savings bank differ from a credit union

How does a savings bank differ from a credit union? Are the CD rates at credit unions typically higher or lower than those at savings banks? What's direct financing? What's indirect financing?

  You are a data analyst with john and sons company the

you are a data analyst with john and sons company. the company has a large number of manufacturing plants in the united

  Calculate the hernandezs total return for this investment

Sarah and James Hernandez purchased 300 shares of Cisco Systems stock at $18.15 a share. One year later, they sold the stock for $23.10 a share. They paid a broker a $36 commission when they purchased the stock and a $50 commission when they sold the..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd