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CAPM: You are given the following information about a company. Its current value in the stock market is $255 Million. The stock’s volatility (i.e., the standard deviation of its return) is 40% per year, and the correlation between its returns and the return on the market is 0.6.
The one-year risk free rate is 3% and the market’s risk premium is 6%. The volatility of the market’s return is 15% per year.
a. What is the company’s beta?
b. What is the company’s expected returns?
c. What is the company expected to be worth a year from now?
A $1,000 par value 10-year bond with a 10 percent coupon rate recently sold for $900. The yield to maturity is:
You have a line of credit for $1,000,000 at 4% for six months from Bank of America. You need to borrow 10,000,000 Mexican Pesos for six months. The spot FX rate is 13 P/$ and the 6-month forward rate is 13.25 P/$. All interest rates are quoted on an ..
The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $3 million and net plant and equipment equals $2.7 million. It has notes payable of $150,000, long-term debt of $750,000, a..
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Gay Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever..
Define the following financial concepts and describe how managers use the concept in decision-making:
A call optionon the stock of boulders has a market price of $7. the stock sells for $30 ashare, and the option has a strike price of $25 a share. what is the exercise value of the call option? what is the option time value?
You have found a project that will produce an annual income of $125,000 at the end of first year. This annual income will increase by 5 percent annually for 7 years. What is the value of this project in today's dollars if you can earn 12% on your inv..
Suppose interest rates on residential mortgages of equal risk are 5.5% in California and 7% in New York. Could this differential persist? What forces might tend to equalize rates? Would differentials in borrowing costs of business of equal risk locat..
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