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A highly risk-averse investor is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolio. The three stocks currently held all have b = 1.0, and they are perfectly positively correlated with the market. Potential new Stocks A and B both have expected returns of 15%, are in equilibrium, and are equally correlated with the market, with r = 0.75. However, Stock A's standard deviation of returns is 12% versus 8% for Stock B. Which stock should this investor add to his or her portfolio, or does the choice not matter?
a. Either A or B, i.e., the investor should be indifferent between the two.b. Stock A.c. Stock B.d. Neither A nor B, as neither has a return sufficient to compensate for risk.e. Add A, since its beta must be lower
The common stock of Modern Interiors has a beta of 1.61 and a standard deviation of 27.4 percent. The market rate of return is 13.2 percent and the risk-free rate is 4.8 percent. What is the cost of equity for this firm?
Public school systems are not noted for providing student education at minimum cost.
Discuss and explain the risk tolerance levels of investors and also describe your risk tolerance level?
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On average your firm sells $32,600 of items on credit each day. Your average inventory period is 30 days and your operating cycle is 50 days. What is your average accounts receivable balance?
How much does Dynamo currently pay in interest, and how much will it have to pay after the restructuring in the prior problem, assuming that the cost of debt is constant?
Calculate the NPV and IRR without mitigation. Round your answers to two decimal places.
If the inflation rate last year was 3 percent, what was your total real rate of return on this investment? (Do not round intermediate calculations.)
Explain how an investor can trade volatility.
He can afford to save $4,100 per month for the next 10 years. If he can earn a 10 percent EAR before he retires and a 7 percent EAR after he retires, how much will he have to save each month in years 11 through 30?
Objective type questions on Financial strategies and is it true or false that Corporate shareholders are exposed to unlimited liability
The Thompson Company projects an increase in sales from $18 million to $25 million, but it needs an additional $500,000 of current assets to support this expansion.
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