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Your research has determined the following information about the common stock of two particular firms.
Stock A Stock B
Expected Return: 10% 15%
Standard Deviation 5% 9%
A. Explain what is meant by the stock’s “Expected Return”
B. Calculate each stock’s coefficient of variation.
College costs are rising and you are saving for the college education of your two children. One child will enter college in 5 years, while the other child will enter college in 7 years. How much will college costs be per year when the children are re..
Your monthly statement from your bank credit card shows that the monthly rate of interest is 1.2%. What is the annual effective rate of interest you are being charged on your credit card if it's compounded annually?
A STRIPS traded on May 1 2013, matures in 18 years on May 1 2031. Assuming a 6.1 percent yield to maturity, what is the STRIPS price?
You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 1.15. You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral r..
Donovan Corp. has a book net worth of $9,800. Long-term debt is $5,500. Net working capital, other than cash, is $1,500 and fixed assets are $11,700. How much cash does the company have?
If two projects have cash flows that tend to move independently of each other (that is, are not related to each other), what can we expect their covariance to be? Which of the following describes the statistical relationship known as covariance?
Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually. Wha..
What is the duration of a two-year bond that pays an annual coupon of 10 percent and whose current yield to maturity is 14 percent? Use $1,000 as the face value. What is the expected change in the price of the bond if interest rates are expected to d..
You have saved $3,000 for a down payment on a new car. The largest monthly payment you can afford is $450. The loan will have a 9% APR based on end-of-month payments. What is the most expensive car you can afford if you finance it for 48 months?
NPV assumes reinvestment of intermediate free cash flows at the cost of capital, while IRR assumes reinvestment of intermediate free cash flows at the IRR. NPV is the most theoretically correct capital budgeting decision tool examined in the text.
Suppose our company has a beta of 1.5. The market risk premium is expected to be 9% and the current risk-free rate is 6%. We have used analysts’ estimates to determine that the market believes our dividends will grow at 6% per year and our last divid..
Property managers can do nothing to increase property cap rates since cap rates are determined by market forces.
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