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Stock A’s expected return and standard deviation are E[RA] = μA = 6% and σA = 12%, while stock B’s expected return and standard deviation are E[RB] = μB = 10% and σB = 20%.
(a) How would you construct a portfolio with expected return of 8% using stock A and stock B? What is the standard deviation of the portfolio? (Assume ρAB = 0.4)
(b) How would you construct a portfolio with standard deviation of 15% using stock A and stock B? What is the expected return of the portfolio? (Assume ρAB = 0.4)
Secolo Corporation stock currently sells for $81 per share. The market requires a return of 11.1 percent on the firm’s stock. If the company maintains a constant 3 percent growth rate in dividends, what was the most recent dividend per share paid on ..
The U.S. inflation rate is 2 percent, and the British inflation rate is 3 percent. - What is the change in the nominal exchange rate?
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Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semi-annual and par value is $1,000.) Please show all work and formulas.
Suppose a dealer uses the repo market to earn a spread on a matched book. He feels rates will rise over the next 180 days. He borrows collateral one week at a time at 10.00% initially from a money market fund and then she lends the collateral to an S..
A grantor transfers $1 million to an irrevocable trust naming his three children as beneficiaries. A bank is the trustee and a spray provision is included in the trust instrument. What are the consequences of this transfer?
Maple Industries has 7 percent bonds outstanding that mature in thirteen years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $1,021.16. What is the firm’s pre-tax cost of debt?
Tapley Inc. currently has total capital equal to $10 million, has zero debt, is in the 40% federal-plus-state tax bracket, has a net income of $3 million, and pays out 40% of its earnings as dividends. What is the stock's current price per share. Ass..
How would having information on the reason for returns and allowances and tracking these reasons help a business? Consider potential reasons for returns and what use the information can be in helping the company make decisions.
Sheaves Corp. has a debt−equity ratio of .8. The company is considering a new plant that will cost $100 million to build. When the company issues new equity, it incurs a flotation cost of 7 percent. The flotation cost on new debt is 2.5 percent. What..
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