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1. What is the purpose of diversification?
Maximize possible returns.
Increase the risk of your portfolio.
Lower the overall risk of your portfolio.
All of the above are correct.
2. What is correct?
The market value of all outstanding debt is the market capitalization of a company.
The book value of the company’s debt is the market capitalization of a company.
The market value of all outstanding shares is the market capitalization of a company.
The book value of the company’s total equity is the market capitalization of a company.
Long-term bonds are currently yielding 3% and the average risk premium on long-term government bonds is 2%. Apple has a market beta of 1.5 and the market-risk premium is 6%. Investors in Apple have a cost of equity that is calculated using the CAPM w..
Consider the formula we used to determine the future value of our deposit. Is this formula a realistic approximation of what we could expect from an investment or are there other issues or factors that must be considered? Besides savings accounts, wh..
Suppose that a firm’s recent earnings per share and dividend per share are $3.10 and $2.10, respectively. Both are expected to grow at 7 percent. However, the firm’s current P/E ratio of 30 seems high for this growth rate. The P/E ratio is expected t..
In actual practice, managers most frequently use which two types of investment criteria?
The exchange rate between South African rand (ZAR) and USD is R7.8789 per $1. Later, ZAR appreciates by 2.5%. Calculate the new direct quote.
XYZ Corporation has just issued a 20 year, 8% annual coupon bond that is callable after five years at a price of $1,075. The current yield to maturity of bonds with similar risk is 8% annually. Assume that the bond was issued at par value. What is th..
If we input a positive PV in our calculator, we get a negative FV if that is what we are solving for. The reverse it true as well. Put in a positive, and the answer is negative. The compounding or discounting effect. Cash flow sign convention
assignment you are interested in proposing a new venture to the management of your company. pertinent financial
SKI Co.’s founders have 1.2 million in shares. They need financing in the amount of $700,000. VC1’s required IRR is 40% for first 2 years and 30% for last two years. The VC believes that exit will happen in 4 years at $5M. What is ownership of founde..
Bourdon Software has 9.2 percent coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 107.4 percent of par. What is the current yield on the bonds?
Consider a S corporation. The corporation earns $3.5 per share before taxes. The corporate tax rate is 35%, the tax rate on dividend income is 15%, and the personal income tax rate is set at 39.6%. What are the shareholder's earnings from the corpora..
You buy a share of stock, write a 1-year call option with strike price X = $100 and buy a 1-year put option with strike price X = $100. The net outlay required to establish this portfolio is $97. The stock pays no dividends. What is the risk-free int..
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