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Suppose you can invest in only the market index fund and 1-month Treasury bill because of some regulation. Assume E[r]=10%, SD[r]=20%, and rf=2%. You become a new portfolio manager at Fidelity. You heard your predecessor chose w=0.5 (=the weight on the market index fund) to please the CEO. You also need to construct the portfolio that will please the CEO, but now E[r]=13%, SD[r]=10%, and rf=3%. So, w=0.5 will not be the optimal portfolio for the CEO any more. What value of w should you pick, given the portfolio theory you learned if the CEO’s risk preference (= price of risk) does not change?
Which of the following can cause a project to have multiple IRRs? The project has a large initial outlay. B) A ten-year project requires an initial investment and has a negative cash flow in the last year of the project's life. Which one of the follo..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.85 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life.
You purchased a 15 year bond at par value when it was initially issued 2 yrs ago. This bond has a coupon rate of 7% and matures 13 yrs from now. If the current market rate for this type and quality of bond is 8.25% than you should expect ---- -
Mary purchased 100 shares of Sweet Pea Co. stock at a price of $43.96 six months ago. She sold all stocks today for $43.36. During that period the stock paid dividends of $2.82 per share. What is Mary’s effective annual rate?
financial management challenges. the following video discusses the four types of markets perfect competition
How would company managers and investors use the WACC for an overall company valuation analysis?
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..
straight-line depreciation and that there is no corporate tax. What is the cash break-even point?
What is the annual tax shield to a firm that has a capital structure consisting of 100 million of debt and $180 million of equity, if the average interest rate on debt is 9%, the return on equity is 13%, and the marginal tax rate is 40%?
An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24% while the standard deviation on stock B is 14%. The correlation coefficient between the return on A and B is 0.35. The expected ..
On July 1, 2014, Frick Co. purchased, as a held-to-maturity investment, $1,000,000 of Frack Inc.'s 8% bonds for $946,000, including accrued interest of $40,000. Frick uses the effective interest method of amortization. In its December 31, 2015 balanc..
Assume a security follows a geometric Brownian motion with volatility parameter = 0.2. Assume the initial price of the security is 25 and the interest rate is 0. It is known that the price of a down and in barrier option and down and out barrier opti..
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