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Consider two portfolios in a single factor world. Portfolio A has a beta of 0.1 and an expected return of 13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate is 10%.
A. Which portfolio is undervalued?
B. Assuming you have a weight on portfolio A of 2, provide weights for B and the risk free rate that generate a zero beta portfolio with sum of weights equal to 1 which we will call portfolio P.
You own a 5-year bond with a face value of $1,000 and a coupon rate of 5 percent with annual payments. The bond is currently worth $810.46. If market interest rates remain unchanged, what will be the value of the bond next year when there are 4 years..
A firm had net income of $100,000, taxes of $25,000 interest expenses of $10,000, cash of $15,000, depreciation of $12,000, and selling and administrative expenses of $120,000. What was the firm’s revenue? What is the firm’s net profit margin?
Studies indicate that the direct cost of bankruptcy is small. What are the direct costs? What are the indirect costs of bankruptcy? What types of firms are most exposed to these indirect costs?
If the promised payment on the bond is the same as the issue price of $100, what is the implied coupon if effective interest rates are 3.0% and the bond has a 1-year maturity?
Blake and Valerie Meyer (both age 30) are married with one dependent child (age 5). On the basis of the following information, compute the Meyers' federal income tax (including any AMT) on their joint return.
The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2009 was $33 million. Common stock and the company’s long-term bonds are constant at $10 million and $5 million, respectively. Notes payable are cu..
A company has net income of $185,000, a profit margin of 8.4 percent, and an accounts receivable balance of $124,370. Assuming 70 percent of sales are on credit, what is the company’s days’ sales in receivables?
Pam owns 50 shares of Floor Mart Inc. The firm has a semi annual dividend policy of $0.75 per share or the option to reinvest the cash dividends into additional shares of company stock. If the stock is selling for $25.00 per share ex-dividend, how ma..
A study examined waiting times in the X-ray department for a hospital in Jacksonville, Florida. Define the experiment the clerk conducted. List the experimental outcomes. Assign probabilities to the experimental outcomes.
Lee purchased a stock one year ago for $28. The stock is now worth $32, and the total return to Lee for owning the stock was 0.35. What is the dollar amount of dividends that he received for owning the stock during the year?
The adjusted present value method (APV), the flow to equity (FTE) method, and the weighted average cost of capital (WACC) method produce equivalent results, but each can have difficulties making computation impossible at times. Given this, which one ..
Bella, Inc. has net income of $3,500,000. The company‘s depreciation expense is $650,000, its interest expense is $200,000, and its income tax rate is 40%. What is its taxable income?
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