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You present a client the following 3 risky portfolios: (r1=25%, SD1=50%); (r2=13%, SD2=25%); (r3=10%, SD3=15%). After examining the portfolios, your client states that she is very risk averse and is only willing to take a little risk in her overall investments. Given this information and assuming a risk-free Rf = 5%, which risky portfolio would you recommend? [NOTE: SD = standard deviation]
A) Choose the risk-free asset only.
B) Choose Portfolio 1 for the money she wants to put at risk.
C) Choose Portfolio 2 for the money she wants to put at risk.
D) Choose Portfolio 3 for the money she wants to put at risk.
Wine and Roses, Inc. offers a 9.5 percent coupon bond with semiannual payments and a yield to maturity of 10.56 percent. The bonds mature in 8 years. What is the market price of a $1,000 face value bond?
Suppose your credit card has a balance of $ 3600 and an annual interest rate of 16.5%. You decide to pay off the balance over two years. If there are no further purchases charged to the card, how much must you pay each month. How much interest will y..
You buy a bond for $1118 that pays $20 interest every 6 months. It will reach maturity in 9 years at which time it will return its face value of $1000 plus the final $20 interest payment. What is the pre-tax annual rate of return on this bond?
A portfolio has 45 percent of its funds invested in Security One and 55 percent invested in Security Two. Security One has a standard deviation of 6 percent. Security Two has a standard deviation of 12 percent. The securities have a coefficient of co..
The original cost of the first machine was $200,000, and the original cost of the second machine was $140,000. The firm's marginal tax bracket is 40 percent. Compute the net investment for this project.
What is the down payment plus the closing costs required to be paid at the property settlement closing for purchasing a $250,000 home, if a loan to value of 80% is required and the closing coats will be 3% of the new loan?
Ann, aged 14, signed a three-year contract with Ted in order to learn ballet dancing. The terms of the contract stated that: a Ted would teach Ann ballet dancing to the best of his ability free of charge; Ann accepted a stage engagement from Bill, as..
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 –$ 19,300 –$ 19,300 1 8,675 9,750 2 8,750 7,625 3 8,625 8,525 Calculate the IRR for each project. Negative amount should be indicated by a minus sign. What is ..
An analysis of the monthly returns for the past year of a mutual fund portfolio consisting of two funds revealed the following statistics:
Pepsico's CFO uses this equation, which was developed by regressing inventories on sales over the past 5 years, to forecast inventory requirements: Inventories = $24.4 + 0.234 x (Sales). The company expects sales of $400 during the current year, and ..
Calculate the average returns for X and Y. Calculate the variances for X and Y.
Compare and contrast the bottom-up budgeting process with the top-down budgeting process. Make sure to discuss their advantages and disadvantages in regard to estimating project budgets and when it is appropriate to use each process.
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