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Security A Security B Expected return 15% 10% Standard Deviation 0.25 0.17 Beta 1.3 1.1 Correlation coefficient between A and B 0.5 Suppose you invest 30% of your money in Security A and the rest in Security B
a) What is the expected return of the portfolio?
b) What is the portfolio beta?
c) What is the portfolio variance? Compare it with A and B variances. Is the portfolio variance larger or smaller than either A or B variances and why?
d) What percentage of your portfolio variance comes from the “interaction” component of total risk?
Build a TGARCH model with GED innovations for the series using at-1 as the threshold variable with zero threshold, where at-1 is the shock at time t - 1.
Suppose you observe the following continuously compounded zero-coupon bond yields
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The timeline shown is summarizing the important dates and events involved in the declaration and payment of dividends. Which of the following events occurs first in this sequence?
Letang Corporation expects an EBIT of $23,000 every year forever. The company currently has no debt, and its cost of equity is 14.5 percent. The company can borrow at 8 percent and the corporate tax rate is 35. What is the current value of the compan..
Suppose the dividends for the Seger Corporation over the past six years were $1.51, $1.59, $1.68, $1.76, $1.86, and $1.91, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method.
Explain under what circumstances the book value cost of capital should be used. Explain why you answered as you did. Explain under what circumstances the market value cost of capital should be used. Explain why you answered as you did.
Inspired by the events in the Montreal cement market in 1966. Be sure to explain your reasoning in both game-theoretic and economic terms.
Computech Corporation is expanding rapidly and currently needs to retain all of its earnings;
Assume, instead that each year the chances that a worker will leave the firm, given he/she has not left to date, are 20% (i.e. the firms expected turnover rate for these sales positions is 20% per year). Which employee should it hire now? Use your sp..
Calculate the expected return of an equally weighted portfolio of these two indices.
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