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Find two publicly traded stocks in different industries and look up estimates of their β. (a) Using Rf=1%, E(Rm) = 8%, calculate the E(r) for each stock. (b) Explain in words a non-finance student could understand why the one stock has a higher expected return than the other.
The last dividend paid by Wilden Corporation was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 11.0%. What is t..
In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock..
Which of the following are sources of cash?
Three years ago, you bought a 12% bond that had 7 years to maturity and a yield to maturity of 12%. Today (after the sixth interest payment), you sold the bond when it is yielding 15%. What is your annual rate of return for the three year period? All..
Acme has branched out to rentals of office furniture to start-up companies. Consider a $4,600 desk. Desks last for six years and can be depreciated on a five-year MACRS schedule. Assume administrative costs drop to $360 per year. The company has just..
A futures is currently at $75. The risk free interest rate is 6.5% p.a. compounded monthly. The volatility of the futures price is 30% p.a. continuously compounded. Using binomial option pricing model, what is the value of 6-month American call optio..
Consider a two-period, two-state world. Let the current stock price be 45 and the risk-free rate be 5 percent. Each period the stock price can go either up by 10 percent or down by 10 percent. A call option expiring at the end of the second period ha..
The project will require an initial investment of $20,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $9,000, after taxes, if the project is rejected. What should Garida do ..
Southwest Physicians, a medical group practice in Oklahoma City, is just being formed. It will need $2 million of total assets to generate $3 million in revenues. Furthermore, the group expects to have a total margin of 5 percent. what is the differe..
Suppose you are buying your first house for $400,000 with 20% down payment. You have arranged to finance the remaining amount with a 30-year, monthly payment, amortized mortgage at nominal annual rate of 3.6%. What is the monthly mortgage payment?
Given the utility function U = E(r) – 0.5Aσ2 and the fact that T-bill offer a risk-free rate of 4%, what is the minimum value for the risk-aversion coefficient A where an investor prefers the T-bills to an investment returning 10% with a standard dev..
What's the taxable equivalent yield on a municipal bond with a yield to maturity of 5.1 percent for an investor in the 33 percent marginal tax bracket?
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