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Assume a market index represents the common factor and all stocks in the economy have a beta of 1. Firm-specific returns all have a standard deviation of 39%. Suppose an analyst studies 20 stocks and finds that one-half have an alpha of 3.3%, and one-half have an alpha of –3.3%. The analyst then buys $1.1 million of an equally weighted portfolio of the positive-alpha stocks and sells short $1.1 million of an equally weighted portfolio of the negative-alpha stocks.
a. What is the expected return (in dollars), and what is the standard deviation of the analyst’s profit? (Enter your answers in dollars not in millions. Do not round intermediate calculations.Round your answers to the nearest dollar amount.) Expected Return $ Standard Deviation $
b-1. How does your answer change if the analyst examines 50 stocks instead of 20? (Enter your answer in dollars not in millions.Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Standard Deviation $
b-2. How does your answer change if the analyst examines 100 stocks instead of 20? (Enter your answer in dollars not in millions.) Standard Deviation $
Simonses, Co has a gross profit of $1,100,000 and $570,000 in depreciation expense. Selling and administrative expense is $340,000. They have $500,000 in Long-term debt at 5% interest with no principal payments. Given that the tax rate is 42 percent,..
When choosing a capital structure, when will the firm's value be maximized?
The Time Value of Money and Financial Statement Analysis Conducting Financial Ratio Analysis Select a publicly traded U.S. company that has paid a dividend for at least the last three years, and conduct a financial ratio analysis. You will be using t..
Cy bought a share of stock for $47.50 that paid a dividend of $.72 and sold one year later for $51.38. What was Cy's dollar profit or loss and holding period return?
A $165,400 mortgage is taken out at 3.35% for 15 years, for the purchase of a house. The loan requires monthly payments. Find the total interest paid over the life of the loan?
In 1904, the first Putting Green Championship was held. The winner’s prize money was $300. In 2009, the winner’s check was $1,560,000. What was the annual percentage increase in the winner’s check over this period? If the winner’s prize increases at ..
The Omega Venture Group needs to borrow to Finance a project. Repayment of the loan involves payments of $5660 at the end of every six months for six years. No payments are to be made during the development period of two years. Interest is 9% compoun..
John takes out a 3 year, $6000 loan at 5% interest, compounded annually, that requires annual interest payments and equal annual payments of principal. Create a time line that shows all cash flows for this investment.
A fourteen-year bond, with par value equals $1,000, pays 10% annually. If similar bonds are currently yielding 9% annually, what is the market value of the bond? Use semi-annual analysis.
A firm has a long-term debt–equity ratio of 0.50. Shareholders’ equity is $2.0 million. Current assets are $320,000, and total assets are $3.200 million. If the current ratio is 1.6, what is the ratio of debt to total long-term capital?
Find the sustainable and internal growth rates for a firm with the following ratios: asset turnover = 1.40; profit margin = 8%; payout ratio = 25%; equity/assets = .70.
Stock A has an expected return of 12% and a beta of 1.2. Stock B has an expected return of 9% and a beta of 0.8. Both stocks have the same reward-to-risk ratio. What is the risk-free rate?
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