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Risk is an important concept affecting security prices and rates of return. Risk is the chance that some unfavorable event will occur, and there is a trade-off between risk and return. The higher an investment’s risk, the equivalent Item 1 the return required to induce investors to purchase the asset. This relationship between risk and return indicates that investors are risk ---- :investors dislike risk and require--------- rates of return as an inducement to buy riskier securities. A--------- represents the additional compensation investors require for bearing risk; it is the difference between the expected rate of return on a given risky asset and that on a less risky asset. An asset’s risk can be considered in two ways: On a stand-alone basis and in a portfolio context.
Rabie, Inc., has an issue of preferred stock outstanding that pays a $5.80 dividend every year, in perpetuity. Required: If this issue currently sells for $80.50 per share, what is the required return?
How institutional investors and individuals participate in money, stock, and bond markets, and equity securities?
Harrison Clothiers' stock currently sells for $29 a share. It just paid a dividend of $2.5 a share (that is, D0 = 2.5). The dividend is expected to grow at a constant rate of 3% a year. What stock price is expected 1 year from now? What is the requir..
Futures contracts on gold are based on 100 troy ounces and priced in dollars per troy ounce. Assume the January gold contract settled today (in December) at 1285.10 and opened at 1284.60. The April contract settled at 1285.30 and opened at 1285. You ..
During 2014, Raines Umbrella Corp. had sales of $720,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $500,000, $90,000, and $85,000, respectively. What is Raines’s net income for 2014? What is the company'..
The stockholder's equity accounts of a corporation on January 1, 2015, were as follows: As of Dec.31, 2015, what is the average selling price of the preferred stock? How many shares of common stock are outstanding as of December 31, 2015? What is tot..
An increase in coupons increases the duration of the bond. The longer the maturity of a bond, the greater will be its duration. An increase in the interest rate decreases the duration of the bond. All other things equal, which of the following bond p..
The risk-free rate of return is 4%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D1, is $2.40 and g = 4%, at what price should a share..
You deposit money into an account each year for 20 years. The first deposit is $1,500, and then each subsequent annual deposit is $500 greater than the previous deposit. The effective annual interest rate is 10%. Find the accumulated value of your ac..
Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $0.39 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs ..
What is the right price for a stock? Is it book value, liquidation value or simply its market price at a given moment in time? Would you value a privately-owned company where there is no market value differently than a publicly owned company where th..
If the before tax RD equals 8% and the firms’ tax rate equals 25%, how much is the Rre using the Bond-Yield-plus-Risk-Premium method?
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