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An unbiased prediction model accounts for only the aleatory uncer- tainty and has a COV of 0.25 in its prediction. An analyst believes that the param- eters of this model are uncertain, and characterizes this uncertainty to be of the epistemic type as a multiplier with a mean value of 1.1 and a COV of 0.25.
Estimate the total uncertainty in prediction by accounting for both the aleatory and epis- temic uncertainties assuming normal probability distributions. Briefly discuss your results.
K is evaluating the introduction of a new product line at her plumbing and Supply Company. She anticipates a selling price of $500 per unit, with sales volume of 2,000 units in Year 1, 3,000 units in Year 2 and 1,500 units in Year 3.
The standard deviation of the market-index portfolio is 20%. Stock A has a beta of 1.5 and a residual standard deviation of 30%. What would make a larger increase in the stock's variance: an increase of .15 in its beta or an increase of 3% (from 30% ..
New England Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every 30 days. A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the fo..
Consider the following bank balance sheet (fixed rates and pure discount securities unless indicated otherwise). Interest rates on liabilities are 10 percent and on assets are 12 percent. (See link for data) What is the duration of assets, DA, liabil..
Beta Industries has net income of $2,000,000, and it has 1,000,000 shares of common stock outstanding. The company's stock currently trades at $32 a share. Beta is considering a plan in which it will use available cash to repurchase 20% of its shares..
ICU inc is a maker of one-way security mirrors for the security industry. The President Seymour Dan Others needs to build a new plant to meet increasing demand.
Discuss the following statement: “The cost of retained earnings is less than the cost of new outside equity capital. Consequently, it is totally irrational for a firm to sell a new issue of stock and to pay dividends during the same year.”
An individual has $110,000 in a retirement account. At the beginning of each year she withdraws $10,000 while earning 10% a year on her money. How much money will be in the account in 20 years? How much will she have in the account after 40 years?
Which of the following statements is TRUE about employment-based dental plans?
Lamey Headstones increases its annual dividend by 1.5 percent annually. The stock sells for $29.65 a share at a required return of 14 percent. What is the amount of the last dividend this company paid? $3.50 $3.60 $3.70 $3.65 $3.55
Adventure Outfitter Corp. can sell common stock for $27 per share and its investors require a 17% return. However, the administrative or flotation costs associated with selling the stock amount to $2.70 per share. What is the cost of capital for Adve..
Preferred stock is not a common source of financing for most firms. However, it should be ignored as a potential source of capital. What is preferred stock and why is it beneficial to corporations? What are the disadvantages of issuing preferred stoc..
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