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The expected returns and betas of two stocks A& B are shown in the table below. The expected market return as represented by the S&P 500 is 10% and the risk free rate is 5%.
Stock A 11% Expected Return 1.2 beta
Stock B 14% Expected return 1.5 beta
True or Flase for each
The fair value return of stock A is 13%
Stock B can be bought at a bargain
Stock A is over-priced
Stock A is better because it’s less risky
The fair-value return of stock b is 12.5%
Today, the stock price of VALE S.A. (based in Brazil) is priced at BRL 13 per share. The spot rate of the Brazilian Real (BRL) is $.25. During the next year, you expect that the stock price of Vale to Increase by 10%. You also expect that the BRL wil..
An HMO has a Point of Service (POS) option for its members, but will pay only 80 percent of approved charges. If a member goes out of network for a medical procedure with a charge of $2,000, of which $1,200 is approved, how much must the member pay?
Identify the 3 most important factors that make one option more expensive than another and briefly explain their impact.
You have just started a new job that offers a retirement savings account.
Clifford, Inc., has a target debt–equity ratio of .85. Its WACC is 8.4 percent, and the tax rate is 35 percent. If the company’s cost of equity is 12.5 percent, what is its pretax cost of debt? If the aftertax cost of debt is 5.1 percent, what is the..
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What is the average cash flow you will receive from the mine if it is always kept in operation and the silver always is sold in the year it is mined?
You are thinking of buying a stock priced at 100 per share. Assume that the risk free rate is about 4% and the market risk premium is 6%. If you think the stock will rise to $115 per share by the end of the year, at which time will it pay a $1 divide..
Would a mortgage payment be considered a annuity? What the main challenge Swiss insurance companies face today?
Equity as an Option and NPV: Suppose the firm in the previous problem is considering two mutually exclusive investments. Project A has an NPV of $1,900, and Project B has an NPV of $2,800.
Suppose a ten-year, 1,000 bond with an 8.8% coupon rate and semi annual coupons is trading for 1,034.65. What is the bond's yield to maturity (expressed as an APR with semi annual compounding)? If the bond's yield to maturity changes to 9.5% APR, wha..
Expected cash dividends are $2.00, the dividend yield is 5%, flotation costs are 7% of price, and the growth rate is 5%. Compute cost of new common stock.
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