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Stock 1: E(R) = 10%, SD = 10% ; Stock 2: E(R) = 20%, SD = 30% ; The correlation between Stock 1 & 2 = 0.5. The risk-free return of 5% is avaliable in T-bills.
A investor invested all of his $10,000 net worth in Stock 1.
(a) Is there any portfolio that can be formed with Stock 1, 2 and risk-free security that can make the investor better off? What is it? Assume that no short-selling of stocks is allowed. And also explain why the portfolio is better than investing Stock 1 alone.
(b) Based on the answer in (a), The investor is advised to invest in that portfolio but he asks if the investment in this portfolio can be guaranteed and will not regret with the portfolio one year from now. Can the advisor assure the investor that there will be no regrets and it is guaranteed? Why or why not? Explain in words.
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T. J. Patrick is a young, successful industrial designer in Portland, Oregon, who enjoys the excitement of commodities speculation. T. J. has been dabbling in commodities since he was a teenager—he was introduced to this market by his dad, who is a g..
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The one-year spot interest rate is r1 = 5.3% and the two-year rate is r2 = 6.3%. If the expectations theory is correct, what is the expected one-year interest rate in one year’s time?
Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 7%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 15%. According to the capital asset prici..
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You purchased 5,800 shares in the New Pacific Growth Fund on January 2, 2010, at an offering price of $34.60 per share. The front-end load for this fund is 5 percent, and the back-end load for redemptions within one year is 3 percent. If the operatin..
The financial risks of participating - or not participating in an ACO; (2) what aspects of an ACO might give rise to concerns for financial and accounting professionals; and (3) whether you think ACOs will afford participants profits.
Woidtke Manufacturing's stock currently sells for $28 a share. The stock just paid a dividend of $3.75 a share (i.e., D0 = $3.75), and the dividend is expected to grow forever at a constant rate of 10% a year. What stock price is expected 1 year from..
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