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Say there are two assets denoted by A and B. Let:
E(rA) = 10% E(rB) = 14%
σA = 8% σB = 18%
Further let the correlation coefficient between the returns of A and B be equal to -1 (ρA,B = −1). Lastly, let the risk-free rate be 3% (rf = 3%).
Create an arbitrage (earn a riskless profit which doesn't require use of your own money).
Historically, the proportion of students entering a university who finished in 4 years or less was 64%. To test whether this proportion has decreased, 122 students were examined and 50% had finished in 4 years or less. To determine whether the propor..
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only individual voting for you. Assume that Schenkel uses cumu..
What is the change in net working capital for the following project? Inventory levels increase $4,000, accounts receivable increase $1,000, additional machinery will be needed in the amount of $120,000 and accounts payable will decrease from $6,50..
If I buy a T-bill future for $950,000 and interest rates go up between now and the delivery date, what will happen to the price of the T-bill future?
An analyst is estimating the intrinsic value Harkleroad Technologies' stock. Harkleroad's free cash flow is expected to be $30 million this year, and grow at a constant rate of 7.5 % a year. The company's WACC is 11%. Harkleroad has $225 million of l..
A zero-coupon bond with a par value of $1,000 matures in 10 years. -At what price would this bond provide a yield to maturity that matches the current market rate of 8 percent?
You are currently earning 12% compounded semiannually. Your investment company is switching all accounts to daily compounding. What rate will give you the same effective annual rate of return as you are receiving now?
A local company sells many varieties of shoes. For one particular line, the company buys the shoes for $15.00 and sells them for $30.00. If shoes are out of stock, the goodwill cost is estimated to be $5.00 per pair, and the sale is lost. Find the op..
Hamberg Manufacturing identified two vehicles from the vehicle pool that can be sold. The purchase prices were $2,500 and $3,000 for vehicle 1 and Vehicle 2, respectively. However, only one vehicle will be sold. Management wants to sell the vehicle w..
Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies?
Better Health Inc. is evaluating two capital investments, each of which requires an up-front (Year 0) expenditure of $1.5 million. The projects are expected to produce the following net cash inflow
The US Constitution, in Article 6, prohibits any religious test from being required to serve in any public office. The Texas Constitution requires that public servants acknowledge the existence of a Supreme Being.
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