Stocks are perfectly negatively correlated

Assignment Help Financial Management
Reference no: EM13911455

The returns on stocks A and B are perfectly negatively correlated (Pab=-1). Stock A has an expected return of 21 % and a standard deviation of return of 40%. Stock B has a standard deviation of return of 20%. The risk-free rate of interest is 11 %. What must be the expected return to stock B?

Reference no: EM13911455

Questions Cloud

The expected return on the portfolio : You own a portfolio that is 33 percent invested in Stock X, 48 percent in Stock Y, and 19 percent in Stock Z. The expected returns on these three stocks are 9 percent, 12 percent, and 14 percent, respectively. What is the expected return on the portf..
Initial cost of the project including the flotation costs : Joe's Legal Services is raising capital to open a new law office in northern Illinois. The project has an initial start up cost of $1,448,289. The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and a flotat..
What is your estimate of the stocks current price : A company currently pays a dividend of $4 per share (D0 = $4). It is estimated that the company's dividend will grow at a rate of 23% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.5, ..
Common stock-what is the current value of the stock : Nicos common stock is expected to pay $1.85 in dividends next year, and the market price is projected to be $40 by year end. If the investor s RRR is 12%, what is the current value of the stock?
Stocks are perfectly negatively correlated : The returns on stocks A and B are perfectly negatively correlated (Pab=-1). Stock A has an expected return of 21 % and a standard deviation of return of 40%. Stock B has a standard deviation of return of 20%. The risk-free rate of interest is 11 %. W..
Transaction analysis-various accounts : Transaction analysis-various accounts. Enter the following column headings across the top of a sheet of paper:
Growth rate of dividends per share expected by investors : Zeniba Inc.’s stock is currently selling for $23.56 per share. The company just paid a dividend = $2.00 per share (i.e., D0 = $2.00), and investors expect the dividend to grow at a constant rate out into the future. Investors require a minimum annual..
Central credit union is offering : Central Credit Union is offering 6.7 percent compounded daily on its savings accounts. If you deposit $5,100 today, how much will you have in the account in 5 years? In 10 years? In 20 years?
Inventory investment-reduced level of average inventory : Paterson Products is considering leasing a computerized inventory control system to reduce its average inventories. The annual cost of the system is $46,000. How much, if any, annual savings will the firm realize on the reduced level of average inven..

Reviews

Write a Review

Financial Management Questions & Answers

  Determine the probability of incurring loss from investing

The expected return and standard deviation of returns of General Mills common stock over the next year are estimated to be 20 percent and 12 percent, respectively. Assume that the returns are approximately normally distributed. Determine the probabil..

  What is cost of equity

B24&Co stock has a beta of 1.50, the current risk-free rate is 3.00 percent, and the expected return on the market is 10.50 percent. What is B24&Co's cost of equity?

  Filing and legal fees related to the stock issue

Wear Ever is expanding and needs $11 million to help fund this growth. The firm estimates it can sell new shares of stock for $40 a share. It also estimates it will cost an additional $300,000 for filing and legal fees related to the stock issue. The..

  Projects are mutually exclusive-produces annual cash flows

Project H requires an initial investment of $100,00 that produces annual cash flows of $45,000 per year for each of the next 3 years. Project T also requires an initial investment of $100,000 and produces cash flows of $30,000 in year 1, $40,000 in y..

  Normally distributed with an average historical return

The annual returns on AAA stocks are normally distributed with an average historical return of 17.3% and a standard deviation of 33.4%. What is the probability that annual return on small-company stocks is between 10% and 30%?

  What must the expected return on the market be

A stock has an expected return of 10.7 percent, its beta is 0.98, and the risk-free rate is 6.15 percent. What must the expected return on the market be?

  Before tax required rate of return on debt

The Blue Bird Company plans a $79 million expansion. The expansion is to be financed by selling $50 million in new debt and $29 million in new common stock. The before tax required rate of return on debt is 5% and the required rate of return on equit..

  Present value of this investment pays

An investment pays you $20,000 at the end of this year, and $10,000 at the end of each of the four following years. What is the present value (PV) of this investment, given that the interest rate is 4% per year?

  Investment in small renewable energy power plant

A municipality is considering an investment in a small renewable energy power plant with the following parameters. The cost is $360,000, and the output averages 50 kW year-round. Calculate the NPV of this investment. Is it financially attractive?

  Describe ?carefully what happens if the investor exercises

Explain ?carefully what happens if the investor exercises the option after two months. ?Suppose that the futures price at the time of exercise is 362 and the most recent ?settlement price is 360.

  Alternative proposals to enhance firms manifesting facility

You have just joined the Maarets Group and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firms manifesting facility. which projects would recommend based on the NPV of each proposal..

  Find the sustainable and internal growth rates for firm

Find the sustainable and internal growth rates for a firm with the following ratios: asset turnover = 2.40; profit margin = 5%; payout ratio = 25%; equity/assets = .20. (Do not round intermediate calculations. Enter your answers as a percent rounded ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd