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Index model: You identify a portfolio of energy stocks. According to your analysis, the portfolio has a beta of 0.75 and an expected return of 4.5%. The expected return of the market is 6.5% and the risk- free rate is 0.5%. The portfolio only includes a few stocks (it is not well diversified) and therefore has both market and firm specific risk.
a. What is the expected return of this portfolio as predicted by the SML?
b. What is the portfolio’s alpha? Is the portfolio overpriced or underpriced?
c. What is the equation for the rate of return of the trading strategy that exploits current conditions and eliminates market risk?
A $50,000 loan obtained today is to be repaid in equal annual installments over the next seven years starting at the end of this year.
calculate the effect of waiting on the project's risk, using the same data. By how much will delaying reduce the project's coefficient of variation?
Consider the following five hypothetical Treasury securities. What is the implied 1.5 spot rate obtained using bootstrapping? Compare your answer is part (a) to the 1.5 year par rate and explain the difference. Why do we use rates on implied zeros ra..
Bond X is a premium bond making annual payments. The bond has a coupon rate of 8.2 percent, a YTM of 6.2 percent, and has 15 years to maturity. Bond Y is a discount bond making annual payments. What are the prices of these bonds today? What do you ex..
Ackerman Co. has 7 percent coupon bonds on the market with twelve years left to maturity.
Last year, Alice's wealth increased by $X and it gave her z units of happiness (or utility). This year Alice's wealth increased again by $X but her utility went up by less than z units. What is this an example of? Diminishing marginal utility of weal..
A financial analyst tells you that investing in stocks will allow you to double your money in 7 years. What annual rate of return is the analyst assuming you can earn?
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2013, and its year-end total assets were $1,100,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
An alternate method of assigning costs is activity-based costing. What would be the cost per unit of producing Android01 using activity-based costing?
The Wendt Corporation had $11.5 million of taxable income. What is the company's federal income tax bill for the year? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.
Humana Inc. is a for-profit American health insurance company based in Louisville, Kentucky. The bonds with 10 years to maturity?
Assuming no liquidity premium, no maturity preferences, no default risk, and no changes in the expected real rate of return,
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