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An investor seeks to create a portfolio from three types of securities: Treasury Bills (T), Corporate Paper (C), and Junk Bonds (J). The table lists the expected rates of return for the asset types and their average risk (on a 1–5 scale, where ‘5’ denotes maximum risk). The investor seeks portfolio allocations (T + C + J = 1) that will maximize the expected return on her portfolio, while maintaining an overall risk of no more than ‘3’.
Security Return (%) Risk
Treasury Bills 2.5 2.0
Corporate Papers 5.0 2.5
Junk Bonds 8.0 5.0
Formulate the investor’s linear programming problem. You do not need to solve this. Write down objective and constraints.
or ABX Inc., the risk premium is 6% and the risk free rate is 3%. What is the value of equity?
You buy a new piece of equipment for $18,965, and you receive a cash inflow of $2,700 per year for 10 years. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method. What is the internal rate of ..
If your capital gains tax rate equals your dividend tax rate, what ex-dividend price per share makes you indifferent between the two trading strategies?
Gibson Associates prepared its financial statement for 2008 based on the information given here. The company had cash worth $1,234, inventory worth $13,480, and accounts receivables worth $7,789. The company's net fixed assets are $42,331, and other ..
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The agreement requires equal rental payments at the end of each year. What is the amount of the minimum annual lease payment?
Swift Manufacturing is evaluating an asset purchase. Compute the range of possible rates of return. Compute the standard deviation of the returns.
You expect your upcoming project to provide annual cash inflows of $3,700, $5,200, and $8,000 at the end of each year for the next three years. If your discount rate is 8%, what is the present value of these cash flows?
PJ's Ice Cream Parlor has asked you to help piece together financial information on the firm for the most current year.
You buy a 10-year, $1000 bond with a coupon rate of 6%, payable annually. if you pay the face value of $1000 and you hold the bond to maturity, what yield will you obtain?. at what price would you purchase the bond if you wanted a yield of 8% for the..
The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2009 was $33 million. Common stock and the company’s long-term bonds are constant at $10 million and $5 million, respectively. Notes payable are cu..
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