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A different analyst uses a two–factor APT model to evaluate expected returns and risk. The risk premiums on the factor 1 and factor 2 portfolios are 3.25% and 2.48%, respectively, while the risk–free rate of return remains at 2.00%. According to this APT analyst, your portfolio formed in question 2 has a beta on factor 1 of 3.95 and a beta on factor 2 of 3.25. According to APT, what is the expected return on your portfolio if no arbitrage opportunities exist?
2. Stock A has a beta of 1.50 and a standard deviation of return of 32%. Stock B has a beta of 3.50 and a standard deviation of return of 58%. Assume that you form a portfolio that is 45% invested in Stock A and 55% invested in Stock B. Using the information in question 1, according to CAPM, what is the expected rate of return on your portfolio?
A corporate bond with a face value of $1,000 matures in 4 years and has an 8% coupon paid at the end of each year. What is the price of this bond if the yield to maturity is 10.15%?
At a coupon rate of 17%. Required: Find the bond equivalent (YTM) and effective annual (EAY) yield to maturity of the bond for the bond prices $1,045, $1,000, $1,145. Bond equivalent annual yield to maturity (YTM) Effective annual yield to maturity (..
If you were the CEO of a large public company. e.g. Pepsi Co., and needed money, would you want to issue bonds? If so, what type of Bond would you want to issue? Would you want to borrow money from a Bank? Or, would you want to issue stock? What info..
Locate the Treasury bond in Figure 7.4 maturing in August 2026. Is this a premium or a discount bond? Premium bond Discount bond What is its current yield? What is its yield to maturity? What is the bid–ask spread as a percentage of par?
Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $33.6 million. If the DVDR fails, the present value of the payoff is $11.6 million. Calculate the N..
Michael's, Inc. just paid $2.60 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.60 percent. If you require a rate of return of 9.8 percent, how much are you willing to pa..
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. If the yield to maturity is 7.9 percent, what is the current price of the bond?
A bond has a current yield of 7%, a coupon rate of 8% with semiannual payments, a face value of $1,000 and matures in 10 years. What is its Yield to Maturity? (Hint: You have to find the price of the bond first and then find the Yield to Maturity)?
Explain the various aspects of finance that management must understand. Interpret the function of the Financial Balance Sheet in assisting in management's decision making process.
The market rate of return is 11.8 percent and the risk-free rate is 3.45 percent. Galaxy Co. has 36 percent more systematic risk than the overall market and has a dividend growth rate of 3.5 percent. The firm's stock is currently selling for $42 a sh..
A- Investments B and C both have the same standard deviation of 20% and have the same correlation to the market portfolio. If the expected return on B is 15% and the expected return on C is 18%, which investment would investors prefer? B- The market ..
The probability of having a recession next year is 30%, and the probability of an expansion is 70%. In a recession, the value of firm X will be 9; in an expansion, 17. The unlevered return to equity of a firm in the same industry is 18.26%. What is t..
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