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Assignment:
A. Write out the equation for the capital Market line(CML) and draw it on the graph. Now add set of indifference curves and illustrate how an investor's optimal portfolio is some combination of the risky portfolio and the risk free asset. What is the composition of the risky portfolio?
B. What is the capital asset pricing model (CAPM)? What are the assumptions that underlie the model? What is the security Market line?
C. What is a characteristic line? How is this line used to estimate a stock's beta coefficient? Write out and explain the formula that relates total risk,market risk, and diversifiable risk.
D. What are two potential tests that can be conducted to verify the CAPM? What are the results of such tests? What is Roll's critique of CAPM tests?
E. Briefly explain the difference between the CAPM and the Arbitrage Pricing Theory (APT).
Maverick Manufacturing, Inc., must purchase gold in three months for use in its operations. Maverick’s management has estimated that if the price of gold were to rise above $1,555 per ounce, the firm would go bankrupt. Should the company buy a call o..
The machine would add to student convenience, but the dean feels compelled to earn an 8 percent return on the investment of funds.
In Year 1, you plan to deposit $3000. In year 2 and Year 3, you plan to deposit $4000 and in Year 4 and 5, you plan to deposit $5000.
Portfolio Return At the beginning of the month, you owned $5,500 of General Dynamics, $7,500 of Starbucks, and $8,000 of Nike. The monthly returns for General Dynamics, Starbucks, and Nike were 7.44 percent, 21.36 percent, and 20.54 percent. What is ..
A share of stock sells for $52 today. The beta of the stock is 1.0, and expected return on the market is 14 percent. what should the share price be in one year?
You are evaluating two different silicon wafer milling machines. The Techron I costs $261,000, has a three-year life, and has pretax operating costs of $70,000 per year. The Techron II costs $455,000, has a five-year life, and has pretax operating co..
Employee Stock Options You own stock in the Hendrix Cuitar Company. The company has implemented a plan to award employee stock options. As a shareholder, does the plan benefit you? If so, what are the benefits?
What is the equivalent annual worth in years 1 to 12 of these energy costs at an interest rate of 12% per year?
What is the present value of the annual dividend that is expected to be paid in 8 years from today?
In his Pecking Order Theory, Stewart Myers argues that managers should consider cost of obtaining various types of external financing in capital structure
What are the alternative use of cash and bank balance with Infosys? In your answer you should come up with at least five alternatives.
karl can afford car payments of $235 a month for ... Question Karl can afford car payments of $235 a month for 48 months. The bank will lend him money to buy a car at 7.75 percent interest. How much money can he afford to borrow?
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