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The following are the monthly rates of return for Madison Corp. and for Sophie Electric during a six-month period.
a. Compute the average monthly rate of return for each stock.
b. Compute the standard deviations for each stock.
c. Compute the covariance between the rates of return.
d. Compute the correlation between the rates of return.
e. What level of correlation did you expect?
How did your expectations compare with the computed correlation?
Would these two stocks offer a good chance for diversification. Why or whynot?
Quality Lumber is planning a major expansion program requiring $5,000,000 in financing. Quality may sell bonds with an 8% coupon rate or sell 200,000 shares of common stock to get the needed funds. Compute the DFL (Degree of Financial Leverage) under..
You have just made a $1,500 contribution to your individual retirement account. Assume you earn a rate of return of 8.7 percent and make no additional contributions. How much more will your account be worth when you retire in 25 years than it would b..
At the end of a fiscal year, a company makes a net profit of $100 and does not pay a dividend. Which of the following is a possible change of the balance sheet?
discuss financial management in nonprofit organizations and write an essay that compares and contrasts the application
The standard deviation of Home Depot Share prices is 30% and that of General Motors shares is 30%. When I hold both stocks in my portfolio and the stocks returns have zero correlation, the overall standard deviation of returns of the portfolio is:
Humphrey’s Housing has been practicing cash management for some time by using the Baumol model for determining cash balances. Some time ago, the model called for an average balance (C*/2) of $500; at that time, the rate on marketable securities was 4..
A firm uses only debt and common stock to finance their operations and maintains a debt-equity ratio of 0.8. Suppose the firm only issues one bond. The information is as follows: the face value of bond is 1,000. Coupon rate is 6%, paid semiannually. ..
The Border Crossing has no debt and a cost of capital of 11.2 percent. Assume the firm switches to a debt-to-equity ratio of .25 and issues bonds at par with a 6.3 percent coupon. What will be its cost of equity after the switch? Ignore taxes.
Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
Consider Toews, an unlevered firm with assets valued at approximately $1 billion. Toews has a current stock price of $10 per share, and also has a policy of not paying dividends. Next consider Jones, with 500 shares of Toews purchased 2 years ago at ..
You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $510,000 per year. Thus, in one year, you receive $1.51 million. In two years you get $2.02 million, and so on. If the appropriate intere..
How might the size of a company affect obtaining R&D funding from the following sources: venture capital, internal cash flow, public equity market, strategic alliances? Are company stability and assets more important, and if so, for which types of so..
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