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Question: Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.6 on the market index. Firm-specific returns all have a standard deviation of 25%.
Suppose that an analyst studies 20 stocks, and finds that one-half have an alpha of +2.5%,and the other half an alpha of -2.5%. Suppose the analyst buys $1.0 million of an equally weighted portfolio of the positive alpha stocks, and shorts $1.0 million of an equally weighted portfolio of the negative alpha stocks.
a. What is the expected profit (in dollars) and standard deviation of the analyst's profit? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Omit the "tiny_mce_markerquot; sign in your response.)
Expected profit (in dollars) $
Standard deviation $
b. How does standard deviation change if the analyst examines 50 stocks instead of 20 stocks? 100 stocks? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Omit the "tiny_mce_markerquot; sign in your response.)
50 stocks 100 stocks
Standard deviation $ $
Grace Fine Dining Trust is financed 100 percent with equity and intends to remain this way. Grace's common stock beta is 1.20, the expected market return is 12 percent, and the risk-free rate is 5 percent. What are the cost of equity and the weigh..
Why do you think standard costing is the most widely used costing system in the world in manufacturing firms, even though more sophisticated systems might be available? Discuss.
Draw two break-even graphs-one for a conservative firm using labor-intensive production and another for a capital-intensive firm.
Use these duration values to calculate the expected change in the value of the loan and the liability for the predicted increase of 1.5 percent in interest rates.
drake corporations convertible bond has a conversion price of 90. the conversion ratio is 15. the market price of the
The dividend paid by the firm will increase at a rate 3% every year. The dividends are discounted at a rate of 8.30% every year.
Examine the derivatives that were involved in the financial collapse of 2008. Speculate on the most likely cause(s) of the collapse.
If this were done, by how much would receivables decline? Use a 365-day year.
Timothy Clum...is in the 25 percent tax bracket and is considering the tax consequences of investing $2000 at the end of each year for 30 years."
Tom Gettback buys 100 shares of Johnson Walker stock for $90.00 per share and a 3-month Johnson Walker put option with an exercise price of $105.00 for $2.00. What is his dollar gain if at expiration the stock is selling for $75.00 per share?
What are the two projects' IRRs at these same costs of capital?
For your first topic in this conference I would like for you to briefly review either your personal experiences and/or the financial literature to identify and present a description of one actual capital project.
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