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Yahoo today=50 Tomorrow: Good =75 Tomorrow: Bad Price=50
Price Shell today=25 Tomorrow: Good 20 Tomorrow: Bad Price=30
Price Treasury today=100 Tomorrow: Good 105 Tomorrow: Bad Price=105
b. Assume your utility has the form U: E(r) - ½(A)σ 2 ; at what level of risk aversion would be indifferent between holding Yahoo or Treasury notes?
c. Suppose your risk aversion equals 4, you form a portfolio of 30% Yahoo and 70% Treasury notes, is this portfolio optimal?
The real risk-free rate, r*, is 2.1%. Inflation is expected to average 3.2% a year for the next 4 years, after which time inflation is expected to average 4.05% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yie..
You are going to invest in a stock mutual fund with a 7 percent front-end load and a 1.4 percent expense ratio. You also can invest in a money market mutual fund with a 4 percent return and an expense ratio of 0.1 percent. If you plan to keep your in..
Midwest Packaging's ROE last year was only 6%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 40%, which will result in annual interest charges of $517,000. Under these conditions, the tax rate will be ..
Titan Mining Corporation has 9.5 million shares of common stock outstanding and 390,000 5 percent semi-annual bonds outstanding, par value $1,000 each. The common stock currently sells for $43 per share and has a beta of 1.25, and the bonds have 15 y..
Calculate the dividends per share and Determine the net asset value of the firm should the company not exercise the option to repurchase its shares.
Winnebagel Corp. currently sells 25,000 motor homes per year at $63,000 each, and 9,500 luxury motor coaches per year at $100,000 each. The company wants to introduce a new portable camper to fill out its product line; What is the amount to use as th..
Susan has one risk-free asset and one risky stock in her portfolio. The risk-free asset has an expected return of 4.8 percent. The risky asset has a beta of 1.2 and an expected return of 13.8 percent. What is the expected return on the portfolio if t..
General Cereal common stock dividends have been growing at an annual rate of 7 percent per year over the past 10 years. Current dividends are $1.70 per share. What is the current value of a share of this stock to an investor who requires a 12 percent..
All of the following are commonly found in a well-constructed business plan, except for: All of the following represent generic business strategies except for: Determining in which markets a firm should compete requires management to consider which o..
Lorenzo owns two apartment buildings. He acquired forsythia acres on February 21, 1998, for $300,000. Neither apartment complex qualifies for low income housing. if Lorenzo elects to write off the cost of each building as quickly as possible, what is..
You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. A large networking company wants to incorporate your software into their systems and is offering to pay you $500,0..
A stock has an expected return of 13.3 percent and a beta of 1.19, and the expected return on the market is 12.3 percent. What must the risk-free rate be?
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