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Consider a risky portfolio consisting of a bond fund with expected return E(rB) equal to 7% with a standard deviation σB of 10%, as well as a stock fund with expected return E(rS) equal to 11% with a standard deviation σS of 20%. The correlation coefficient between the returns on the bond and stock funds, ρBS, is equal to .2 and the risk-free rate is 3%.
(a) Draw the optimal CAL and calculate its Sharpe ratio.
(b) Calculate the investment proportions in the bond fund, the stock fund, and the risk-free asset for investor with risk aversion, A, equal to 5.
(c) What is the answer to (b) above if our investor is less risk averse; that is, her risk aversion, A, is now equal to 3.
Black-Scholes Model Assume that you have been given the following information on Purcell Industries: Current stock price = $12 Strike price of option = $11 Time to maturity of option = 6 months Risk-free rate = 8% Variance of stock return = 0.13 d1 =..
Motor Homes Inc. (MHI) is presently in a stage of abnormally high growth because of a surge in the demand for motor homes. The company expects earnings and dividends to grow at a rate or 20% for the next 4 years, after which time there will be no gro..
Funds acquired by the firm through retaining earnings have no cost because there are no dividend or interest payments associated with them, and no flotation costs are required to raise them, but capital raised by selling new stock or bonds does have ..
The net profit margin for a company is 26.2 %, the asset turnover is 0.877, the equity multiplier is 1.573, and the dividend payout rate is 19 %. What is the return on assets? Show Your Work! (Answer to the nearest tenth of a percent, i.e. 12.3 witho..
Find operating cash flow and Find the change in long-term debt.
Does more competition between online and on-ground retail companies, domestic and foreign, usually help consumers? Explain.
What will be the effect on Fly's EPS and PE ratio under the two-different scenario?
Your portfolio is 200 shares of Barden, Inc. Assuming no taxes, what is your portfolio value as of April 19?
Suppose that today’s date is April 15. If you buy the bond from a dealer today, what price will you pay for it?
A bond has a $1,000 par value, 20 years to maturity, and a 8% annual coupon and sells for $1,110. What is its yield to maturity (YTM)? Assume that the yield to maturity remains constant for the next 5 years. What will the price be 5 years from today?
Suppose the returns for Stock A for last six years was 4%, 7%, 8%, -2%, 9%, and 7%. Compute the standard deviation of the returns.
Your company has an expected unlevered, after-tax cash flow for the next two years of $281,000. What is the value of the company?
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