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The expected return on the S&P 500 index is 12%. The return on the T-bill is 5%. The standard deviation of return on the S&P 500 index is 18%. Investors can form portfolios from these 2 securities. Suppose investors have a utility function of the following form: U = E(Rp) ? 1 2 A 2? 2 (Rp) where Rp is the return on the portfolio. Suppose that the coefficients of risk aversion for George and Ann are 3 and 7, respectively. Answer the following questions: (a) Draw the investment opportunity set (b) On the same diagram, draw indifference curves for the 2 investors (hint: you can choose arbitrary utility levels in order to draw these indifference curves). (c) What are the optimal portfolios for the two investors? (In other words, what are the optimal portfolio weights they put in the risk free asset and the S&P 500 index?) Calculate the utility level these investors obtain from these portfolios.
Suppose a zero growth stock is expected to pay a $0.5 dividend every quarter and the required return is 5% with quarterly compounding. What is the price?
Discuss the differences in merger practices between U.S. companies and companies in other countries. What changes are occurring in international merger activity, particularly in Western Europe and Japan?
Consider the following capital market: a risk-free asset yielding 0.75% per year and a mutual fund consisting of 70% stocks and 30% bonds. The expected return on stocks is 10.75% per year and the expected return on bonds is 3.25% per year.
Assessing the Use of Financial Data in Strategic Decision-Making - Post an explanation of the tools that you believe would help you to reach a decision - Post an explanation of the tools that you believe would help you to reach a decision.
what are the difference between heavy life surcharge and long life surcharge ? details about legal aspect of carriage
Henry places the lump sum amount of $475 in a bank savings account today that offers an annual interest rate of 7.95% compounded 12 times per year. How much will Henry have in his account 9 years from today?
Consider an adjustable rate mortgage of $90,000 with a maturity of 30 years and monthly payments. At the end of each year, the interest rate is adjusted to become two percentage points above the index. There is an annual cap of 300 basis points (3%),..
Reflect on your understanding of International Finance at this point. What are some topics you currently find difficult to comprehend? What areas of this course do you find more engaging and interesting?
What are the three distribution methods available to Annette? Which method should she choose to maximize tax deferral? Based on the appropriate life table, how much would her first required distribution be? When would this distribution happen?
Construct a yield curve based on these reported yields, putting term-to-maturity on the horizontal (x) axis and yield-to-maturity on the vertical (y) axis.
The following are two popular approaches used by automobile dealers: (a) Cash Rebate Versus Low Rate Dealer Financing You are given two mutually exclusive options from the dealer on a $20,000 car: (i) $1,500 cash rebate or (ii) 36-month low rate loan..
Value the business from the potential buyer's (Great Wall) viewpoint, considering the changes that it will make, explaining fully.
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