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Consider the following starting values for US Price Index = 600 and UK Price Index = 500. Spot exchange rate is $1.5/pound. Suppose one year later the price levels are expected to rise to 612 and 505 in US and UK respectively. Assume relative PPP holds. a) What are the expected inflation rates in US and UK? b) What is the expected % change in pound's value over the next year? (show necessary work)
Company B just paid an annual dividend of $.42 a share. The stock is selling for $18 a share and has a growth rate of 2.2 percent. What is the dividend yield, using the constant growth model?
A newly issued 10- year maturity, 5% coupon bond making annual coupon payments is sold to the public at a price of $810. The bond will not be sold at the end of the year. The bond is treated as an original issue discount bond. What will be an investo..
Portfolio Required Return Suppose you manage a $4.91 million fund that consists of four stocks with the following investments: Stock Investment Beta A $460,000 1.50 B 500,000 -0.50 C 1,500,000 1.25 D 2,450,000 0.75 If the market's required rate of re..
The reversal effect says the past winners will outperform the past losers in the near future. Once the stock A is categorized as a value firm, it never changes.
Al was one of several beneficiaries of an irrevocable trust created by his grandmother. Al was given the right to withdraw the greater of $5,000 or 5% of the trust corpus each year. Al withdrew $100,000 from the trust the day before he died. The valu..
What does it mean when we say that the correlation coefficient for two variables is -1? What does it mean if this value were zero? What does it mean if it were +1?
The Spring Flower Co. has earnings of $1.80 per share. The benchmark PE for the company is 16. What stock price would you consider appropriate?
Stock value is positively related to its growth rate, everything else being the same.
A firm's business risk is determined solely by the financial characteristics of its industry. A firm's financial risk can be minimized by diversification. Other things held constant, which of the following events would be most likely to encourage a f..
The Redford Investment Company bought 120 Cinema Corp. warrants one year ago and would like to exercise them today. The warrants were purchased at $29 each, and they expire when trading ends today (assume there is no speculative premium left). If the..
Sisters Corp expects to earn $7 per share next year. The firm’s ROE is 14% and its plowback ratio is 60%. If the firm’s market capitalization rate is 10%. Calculate the price with the constant dividend growth model. Calculate the price with no growth..
Sam was injured in an accident, and the insurance company has offered him the choice of $35,300 per year for 39 years, with the first payment being made today, or a lump sum. If a fair return is 8.85%, how large must the lump sum be to leave him as w..
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