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An investor holds 50,000 shares of a certain stock. The market price is $30 per share. The investor uses the 3-months Mini S&P 500 futures contract to hedge. The index is currently 1,500 and one contract is for delivery of $50 times the index.
a. If the beta of the stock is 1.3, what is the optimal hedging strategy for the investor?
b. If the risk free interest rate is 1% per month, find the approximate value of the investor’s position (stock and futures) after 1 month if the index is 1,200.
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.6%. The probability distributi..
Solve each situation separately, where P = principal; r = interest rate; t = time in years; I = interest and future value FV = You want to start a bakery business. For this, you will need a capital of $ 75,000 to start operating. If you have to opera..
Niendorf Corporation's 5-year bonds inflation premium for 5-year bonds yield 9.50%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r = 2.75%, the inflation premium for 5 years is IP = 1.65%, the default risk premium for Niendorf's bonds I..
You construct a price-weighted index of 45 stocks. At the beginning of the day the index is 6,542.19. During the day, 44 stock prices remain the same, and one stock price increases $3.00. At the end of the day, your index value is 6,579.17. What is t..
An entity has a stock that has a beta of 1.20 when the risk free rate is 5% in 2010. The average return on the market in 2010 was 12%. In 2011 the risk free rate increased by 1% due to inflation, but the return on the market increased by 2%. Calculat..
The Wei Corporation expects next year's net income to be $10 million. how large should Wei's dividend payout ratio be next year?
Consider a 30-year corporate bond paying 8 percent semi-annual coupon. The current yield to maturity is 10 percent. Find the approximate bond’s modified duration by using changes in the interest rate up and down by 5 basis points.
Which of the following statements about the future value of a dollar is true?
(Calculating an EAR?) You have a choice of borrowing money from a finance company at 23 percent compounded monthly or borrowing money from a bank at 25 percent compounded quarterly. Which alternative is the most? attractive? Based on the findings? ab..
The Carlton Corporation has $6 million in earnings after taxes and 3 million shares outstanding. The stock trades at a P/E of 25. The firm has $5 million in excess cash. Compute the current price of the stock. What will the new earnings per share be?..
risk and return coefficient of variation ltbrgtbased on the following information calculate the coefficient of
You are looking at investing in SML Industries stock. Risk free rate is 2%, rm is 11%, Beta is 1.2. Growth is 4%. Do is $3.00. Current price is $75. Using CAPM, what is the required return? Using constant growth valuation, what is the expected return..
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