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Various trading strategies appear to offer non-zero alphas when we examine real world data. If indeed these alphas are positive, it could be explained by any of the following except:
The market portfolio is inefficient, but the market portfolio proxy used to calculate the alphas is efficient.
Investors are systematically ignoring positive-NPV investment opportunities.
A stock's beta with the market portfolio does not adequately measure a stock's systematic risk.
The positive alpha trading strategies contain risk that investors are unwilling to bear but the CAPM does not capture.
Frank spends $30,000 on an investment that will create $33,000 in revenues for a year. Assuming that the investment cost Frank 15%, do you think it would be a good investment? Explain the difference between Net Present Value and Internal Rate of Retu..
The T-bill rate is 4%, and the expected return on the market portfolio is 11%. a. Which projects have the higher expected return than the firm’s 11% cost of capital? b. Which projects should be accepted? c. Which projects would be incorrectly accepte..
Use Hoover’s database to access the components of the DuPont Equation: ROE = PM*TAT*EM for Wal-MART (Ticker:WMT). Compare Wal-Mart’s components to similar Industry ratio or peer ratios (a Wal-Mart competitor) for the current year. Hoover’s also provi..
Arter Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year. How much of the raw material should the company purchase during the year? Assume that company plans to s..
What market forces would occur to eliminate any further possibilities of covered interest arbitrage?
Triangular arbitrage and Bilateral Arbitrage
suppose that an investor has expressed an interest in buying the property, but demands a 20% return on his equity investment.
Rent-A-Dress (RAD) rents out designer fashion apparel to customers who would like to wear elegant dresses on special occasions but do not wish to purchase them.
A deposit of $800 is planned for the end of each year into an account paying 8 percent/year compounded annually. The deposits were not made for the tenth and eleventh years. All other deposits were made as planned. What amount will be in the account ..
City Tire has issued 100 convertible bonds with a conversion ratio of 20. Currently the bonds have not been converted and City Tire has 3,000 shares of common stock outstanding. What is the lowest stock price at which a convertible bondholder would f..
You construct a pro forma income statement and balance sheet in order to estimate the amount a company needs to borrow in the forthcoming period.
Lucie is reviewing a project with an initial cost of $38,700 and cash inflows of $9,800, $16,400, and $21,700 for Years 1 to 3, respectively. Should the project be accepted if it has been assigned a required return of 9.75 percent?
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