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1. Consider a sequential trade model in which a security has an uncertain value. The value V of the security can either be $150 or $250 with equal probability. The proportion of informed traders is 40%, whereas the proportion of liquidity traders is 60%. As usual, liquidity traders buy or sell with equal probability, whereas informed traders only buy when they know the security price is high, and sell when they know the security price is low. The dealer will set his ask at:
a. Ask = 170
b. Ask = 180
c. Ask = 200
d. Ask = 220
e. Ask = 230
f. None of the above.
2. A portfolio comprises 100 shares of Quicksand Mining Co. ($130 per share) and 200 shares of Bad Bet Bond Fund ($32.50 per share). The expected return on Quicks & Mining Co.’s shares is 60% and the expected return on Bad Bet Bond Fund’s shares is 30%, what is the expected return for the portfolio?
A. 50.00%
B. 45.00%
C. 42.50%
D. 40.00%
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 20 percent, –12 percent, 17 percent, 20 percent, and 10 percent. a. What was the arithmetic average return on Crash-n-Burn’s stock over this five-year pe..
Booher Book Stores has a beta of 1.3. The yield on a 3-month T-bill is 5% and the yield on a 10-year T-bond is 6.5%. The market risk premium is 4%. What is the estimated cost of common equity using the CAPM?
Kaelea, Inc., has no debt outstanding and a total market value of $100,000. Calculate the percentage changes in ROE for economic expansion and recession.
You pick up the morning newspaper and note a headline reporting a major scandal about the Federal Deposit Insurance Corporation that is likely to undermine the public’s confidence in the banking system. What impact, if any, do you think this scandal ..
What is the last date that you can purchase the share and still receive the dividend?
Analyze Cash Flow and Cash Management of Starbucks Corporation. Analyze the cash flow and cash management of the chosen company.
Financial analysts forecast Limited Brands (LTD) growth for the future to be 13.8 percent. LTD’s most recent dividend was $2.40. What is the fair present value of Limited Brands’s stock if the required rate of return is 16.5 percent?
What would be the priority of the claims as to the distribution of assets in a liquidation under Chapter 7 of the Bankruptcy Act? 1 is the highest claim, 5 is the lowest. Trustees' costs to administer and operate the firm. Common stockholders.
Gemco Jewelers earned $5 million in after-tax operating income in the most recent year.
If the required return is 12 percent, and the company just paid a dividend of $1.60, what is the current share price?
Geronimo, Inc. is considering a project that has an initial outlay or cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000, and $80,000, respectively. Geronimo uses the i..
If a yield curve slopes upward, then what term (maturity length) of bond pays the highest interest rate? Yield curves are usually upward sloping. According to the expectations theory of the term structure of interest rates, what does that suggest peo..
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