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A. Common stock A has an expected return of 10%, a standard deviation of future returns of 25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50. Which stock is riskier? Explain.
b. Suppose rf is 5% and rM is 10%. According to the SML and the CAPM, an asset with a beta of -2.0 has a required return of negative 5% [= 5 - -2(10 - 5)]. Can this be possible? Does this mean that the asset has negative risk? Why would anyone ever invest in an asset that has an expected and required return that is negative? Explain.
A business can be liquidated for $700,000, or it can be reorganized. Reorganization would need an investment of $400,000.
Which of the following combinations correctly states the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses?
is it true that an option can never sell for lessthan you can make by exercising the option
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If your goal is to generate a portfolio with the expected return of 14.25%, how much money will you invest in stock A. In Stock B.
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Compare your findings in parts a.1. and a.2. All else being identical, which type of annuity-ordinary or annuity due-is preferable? Explain why.
Presume that a highly liquid market does not exist for long-term T-bonds and and the expected rate of inflation is a constant
Corporations are constantly making business decisions based on accepting a certain level of risk. Discuss and explain a situation where a company has accepted a certain degree of risk.
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