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1. If the rate of return on the S&P 500 index was 23% for 2009, and the risk-free rate at the end of 2009 was 1%, calculate the equity risk premium for 2009? Recalculate the equity risk premium using 1981 data, when the risk free rate was 15% and the S&P 500 index return was minus 10%. What are the implications of different equity risk premia numbers for different time periods? HINT: Write out the CAPM equation and think through the question analytically, in terms of the inputs to the equation and the output.
2. As of early September 2010, Wal-Mart's (WMT) beta is 0.33 and Target Stores (TGT) beta is 1.02. Discuss the meaning of these two betas, analytically, by briefly setting forth the process for calculating beta and the inputs to the calculations where beta is the output, i.e., the slope of the characteristic line.
3. The risk free-rate as of early September 2010 was the yield on a 10-year Treasury bond, 2.8%. Assuming that the long-term historical rate of return (and the expectation for the future as well) on the S&P 500 Index is 9%, apply the CAPM equation and calculate the expected rate of return for Wal-Mart and Target Stores stock.
4. Explain why the beta of the S&P 500 Index is 1.0
Explain the arbitrage opportunity that exists and how an investor can take advantage of it.Give specific details about how to form the portfolio, what to buy and what to sell.
What is the coupon rate for a bond (face value $1,000) with five years until maturity, a price of $957.88, and a yield to maturity of 6%? What is the current yield for this bond?
The company just paid a $1.80 dividend and plans to pay $1.86 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return (%) on this stock?
Analyze or look at brand and critically assess them, an important analysis is the value chain.
What do you mean by Financial index and commodity index?
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Calculate the total finance charge and annual allocation of finance charge
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Two years after the bonds were issued, the going rate of interest on similar bonds fell to 8 percent. At what price would the bonds sell and If you bought the bond on the issue date at the issue price and expected to hold it until it matures on Dec..
Draw a time line to show the cash flows of the project and compute the project's payback period, net present value (NPV), profitability index (PI), and internal rate of return (IRR).
David runs a stop sign and causes a serious auto accident, badly injuring two people. The injured parties win lawsuits against him for $30,000 each.
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