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In a world of uncertainty, we cannot tell 100% certain what could happen. Thus, we must speak in terms of expected events. The expected rate of return of an investment, therefore, is stated as the weighted average of all possible events where those events are tied to the probability that each will occur.
When dealing with investment, we also need to know how risky is an investment, i.e. the prospect that we experience actual returns that are different from expected return.
a. Given the information on the table below, calculate expected rate of return and standard deviation of stock returns of iLight Inc. Explain the meaning of the numbers you've obtained from the calculations.
Demand for the company's products Probability of this demand occurs Rate of return if this demand occurs Weak 0.1 -30%
Below average 0.2 -5%
Average 0.4 12%
Above average 0.2 17%
Strong 0.1 25%
b. Assuming returns of the stock follow a normal distribution, draw the probability distribution of its returns. Explain the graph.
A share of common stock has an expected long-run constant dividend rate of 7%, and the most recent dividend D_0, was $5.00.
Perform a DU point analysis of Eldercare Inc, Assume that the industry average ratios are as follows: calculate and interpret the following ratios:
Trump Card Co. will issue stock at a retail (public) price of $32. The company will receive $29.20 per share.
Django Inc. is a new IPO and will not pay any dividends for the next 5 years. Branco’s will pay $0.25 of dividends at the end of the six year. The firm plans to raise its dividend by 70% the year after that time. The required rate of return for Djang..
The subjective approach to project analysis:
Write a detailed Industry/Market Definition as part of a project plan for the acquiring firm
Explain the degree to which the existing benchmarks align with existing organisational goals. Propose improvements which would better align benchmarks as needed.
The budgeted direct labor cost per unit of Product WZ would be:
In the attached article titled “Higher Costs Bite Chocolate Makers”, graphs show increases in cocoa and sugar prices. Sugar prices increased from $0.11 per pound at the beginning of 2015 to $0.20 per pound at the end of June 2016. The annualized pric..
The bond pays interest annually. If Timothy requires a return of 8%, what should he pay for the bond?
What do you consider as a small bank? Do small banks actually perform better than the larger banks?
Calculate the cost of externally generated equity for Gen X.
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