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The expected return of security A is 20% and that of security B is 10%. Also, the standard deviation of security A is 4% and that the standard deviation of security B is 2%. The correlation coefficient between A and B is 0.0. a. (3) What is the expected return on the portfolio composed of 50% security A and 50% security B? b. (3) What is the standard deviation of the portfolio’s return using the weights in part A (the measure of risk)? c. (4) Use the coefficient of variations to compare the expected risk and return of the portfolio in part a above with a portfolio that only consists of security B (100% of the portfolio’s value in B and 0% in A). Given their return, which is a more risky investment? Why?
The difference between the weighted-average cost of capital (WACC) and the pre-tax (unlevered) WACC is
Financial time series, such as stock prices, interest rates, foreign exchange rates, and inflation rates, often exhibit the phenomenon of volatility clustering, which linear structural (and time series models) cannot explain. i. Explain Volatility Cl..
A firm is considering the refunding of a $60 million, 16% coupon, 30- year bond issue that was sold 5 years ago; there were $3 million in flotation costs. The firm's investment bank has indicated that the firm could sell a new 25-year issue at 13%. T..
Susie deposits $1500 into an account today and then $1000 into the account 10 years later. Assume that interest is credited to the account at a nominal annual interest rate of i^(6), convertible every two months, for the first 5 years, and at a nomin..
What happened in 2008 is the "living will" rule in the Dodd Frank documents is trying to fix or correct? Please be elaborate and provide the best example in great detail.
Jerry Carter's home is currently valued, on a cost basis, at $315,000. When he last checked his policy, his home was insured for $235 000, and he did not have an inflation guard If he has a s25,500 claim due to a kitchen fire, how much will his homeo..
Your grandmother is gifting you $100 at the beginning of each month for four years while you attend college to earn your bachelor's degree. At a 6 percent annual interest rate, what are these payments worth to you on the day you enter college?
According to the NPV, which franchise or franchises would be accepted if they are independent? Which could be accepted if they are mutually exclusive? Evaluate each franchise's NPV? Be sure to show your calculations.
A $1000 par value bond pays a coupon rate of 8.2 percent. The bond makes semiannual payments, and it matures in four years. If investors require a 10 percent return on this investment, what is the bond's price?
Find the future value of an ordinary annuity if payments are made in the amount R and interest is compounded as given. Then determine how much of this value is from contributions and how much is from interest. R=15,000;4.5% interest compounded quarte..
You own stock in a firm that has 1.25 million shares outstanding. The current stock price is $150 per share. If the stock is split 3 for 1, what would the stock price be after the split? How many shares would be outstanding?
Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating costs to be $265,000, assets to be $200,000, and its tax rate to be 35%. Under Plan A it would use 25% debt and 75% common equity...
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