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Wendy invests $25 in Stock A and $75 in stock B. The expected returns of stock A and B are 10% and 4%, respectively.
Use the information in the question above. Stock A and stock B have sigmas of 50% and 10% respectively. The two stocks have a correlation of 0. What is Wendy's portfolio risk (sigma)?
A) 17.38% B) 14.58% C) 10.48% D) 15.38%
In 2005, Joe who is 75 years old, created a 10 year GRAT into which he transferred $1 million of securities. Joe’s basis in the securities is $250,000. At the time Joe transferred the assets into the GRAT, the IRC Sec. 7520 rate was 4.8%. What amount..
Compute the return the firm should earn given its level of risk. Determine whether the manager is saying the firm is undervalued or overvalued.
A Treasury STRIPS is quoted at 61.159 and has 10 years until maturity. What is the yield to maturity?
El Paso Widget Inc. bought Euro call option for a strike price of $1.10 for March, 2014 paying 15.25 cents per unit. When they exercised the option, the spot price was $ 1.36. There are 62,500 units per Euro option. What is the break-even point for..
Company X has a higher required return than Company Y, but Company X has a lower standard deviation of returns than Company Y.
Money market transactions
On January 1, 2012, your brother's business obtained a 30-year amortized mortgage loan for $250,000 at a nominal annual rate of 4.35%, with 360 end-of-month payments. The firm can deduct the interest paid for tax purposes. What will the interest dedu..
Mark Arkanfarkar (purely fictitious name) and his wife, Mary, have some concerns about their entire insurance program, which includes their personal insurance and their home based business. Using all the risk management knowledge and information avai..
Grind Co. is considering replacing an existing machine. The new machine is expected to reduce labor costs by $88,000 per year for 5 years. Depreciation on the new machine is $58,000 compared with $44,000 on the old machine. In addition, inventory wil..
Suppose that the risk free rate is 4 percent and the market rate of return is 12 percent. For a health care firm with a market beta of 1.3, what is the expected return on its publicly traded stock?
King Farm Manufacturing Company’s common stock has a beta of 1.04. If the risk-free rate is 2.65 percent, and the market return is 8.71 percent, calculate the required return on King Farm Manufacturing’s common stock.
Suppose the dividends for the Seger Corporation over the past six years were $1.00, $1.08, $1.17, $1.25, $1.35, and $1.40, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method.
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