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(a)The expected return on a given efficient portfolio is 25% and its standard deviation is 4%. Suppose that the risk-free rate is 5% and the expected return on the market portfolio of risky assets is 20%. In this environment, what expected rate of return would a security earn if it had a 0.5 correlation with the market and a standard deviation of 2%? (b) What is the beta of an efficient portfolio with rp = 20% if rf = 5%, rm = 15%, and σm = 20%? What is its standard deviation? What is its correlation with the market?
ABC, Inc., common stock has a current market price of $52 per share. Dividends have been $5 a share for several years and are expected to remain at that level for the foreseeable future. Other companies of similar risk and characteristics yield 10% i..
Why is the value of a futures or forward contract at the time it is purchased equal to zero? Contrast this with the value of the corresponding spot commodity?
Your company is considering a machine that will cost $ 5,908 at Time 0 and which can be sold after 3 years for $ 567 . To operate the machine, $ 881 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired ..
Fama’s Llamas has a weighted average cost of capital of 11 percent. The company’s cost of equity is 13 percent, and its pretax cost of debt is 9 percent. The tax rate is 40 percent. What is the company’s target debt−equity ratio?
A firm paid dividends of $10,000, paid interest of $20,000, reduced debt principal outstanding in the amount of $100,000, and sold new stock for $150,000 what was the firms cash flow from financing activities
The difference between the weighted-average cost of capital (WACC) and the pre-tax (unlevered) WACC is
Anne Lockwood, manager of Oaks Mall Jewelry, wants to sell on credit, giving customers 3 months to pay. However, Anne will have to borrow from her bank to carry the accounts receivable. What nominal annual rate should she quote to her credit customer..
A five-year project has an initial fixed asset investment of $285,000, an initial NWC investment of $25,000, and an annual OCF of −$24,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently experienced a market reevaluation. The firm has a bond issue outstanding with 15 years to maturity and a coupon rate of 8 percent, with interest being pai..
What is the payments mechanism?- What changes are occurring in this mechanism? - Why are they occurring? How do smart cards differ from storedvalue cards?
RAK, Inc., has no debt outstanding and a total market value of $180,000. Earnings before interest and taxes, EBIT, are projected to be $25,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 10 percen..
Mitchell and Meyer Associates bought land and a building for their business operations on January 10, 2013 for $600,000. The land was appraied at $200,000 and the building purchase price was $400,000.
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