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Stocks A, B, and C all have an expected return of 10% and a standard deviation of 25%. Stocks A and B have returns that are INDEPENDENT of one another, i.e., their correlation coefficient, r, equals zero. Stocks A and C have returns that areNEGATIVELY CORRELATED with one another, i.e., r is less than 0. Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B. Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C. Which of the following statements is correct?
Portfolio AB has a standard deviation that is equal to 25%.
Portfolio AC has a standard deviation that is less than 25%.
Portfolio AB has a standard deviation that is greater than 25%.
Portfolio AC has an expected return that is greater than 25%.
Compute the ‘fair’ value of the two nearest to expiration futures contracts on the S&P500 Index (SPX) using SPX as the underlying asset. What are the transaction costs in index arbitrage activity?
Calculate the present value of the following cash flows discounted at 10 percent.
Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 23 percent a year for the next 4 years and then decreasing the growth rate to 4 percent per year. The company just paid ..
You must evaluate a proposal to buy a new milling machine. the base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. What ..
Your firm is contemplating the purchase of a new $615,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $67,000 at the end of that time. You will save $245,000 before..
Holly's is currently an all equity firm that has 10,000 shares of stock outstanding at a market price of $60 a share. The firm has decided to leverage its operations by reduce outstanding stocks and issuing $120,000 of debt at an interest rate of ..
Once a company acquires 5% of the outstanding shares of a publicly held company, it must:
Discuss the organization's effectiveness in terms of influencing healthcare delivery and improving accessibility to healthcare services via the policies promulgated by the organization.
A couple planning to buy a home have found a $300,000 home available with the following mortgage loan options. (option a) the borrowers can obtain an 80 percent loan to value at a 3.5% interest rate with monthly payments amortized over 30 years and c..
Companies A and B differ only in their capital structure. A is financed 30% with riskless debt and 70% with equity; B is financed entirley with equity. Both companies operate in a perfect capital market and earn $200,000 of operating income each year..
We begin the capital budgeting process by determining the incremental earnings of a project. The marginal corporate tax rate is the tax rate the firm will pay on an incremental dollar of pretax income. Investments in plant, property, and equipment ar..
The all equity firm’s current cost of equity is 9.12 %. Market risk premium is 4% and risk free rate is 6%. The firm’s tax rate is 40%. The firm is considering a recapitalization where they would sell bonds and use the money from the bond sale to rep..
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