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We can use probabilities of factors (such as economic states), expected returns of an investment, and the weight of an investment of a portfolio to help estimate expected portfolio returns. How is this done? Work out a quick example.
A common stock is held for two years, during which time it receives an annual dividend of $10. The stock was sold for $100 and generated an average annual return of 16%. What price was paid for the stock?
Calculate the annual return for the 30-year maturity bond over the next five years.
A firm decides to use debt to raise its return on equity. It currently has sales of $2 million, total assets of $1 million and a debt ratio of 20%. It's net profit margin has been 10% and it expects it to stay there into the future. If it borrows an ..
Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $4.00 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, ..
Piglet Pies has issued a zero-coupon 10-year bond that can be converted into 10 Piglet shares. Comparable straight bonds are yielding 8%. Piglet stock is priced at $64 a share. If the convertible bond is priced at $552, how much are investors paying ..
Allison Peavy wants to invest but is worried about risk: In particular, she is worried that bad management and increased competition in the wireless phone market will make these companies less profitable than expected. What type of risk is Allison mo..
Choose a company from Fortune 500 article. Using the financial data of the selected company, provide the following ratios: Inventory Period, Accounts Receivable Period, and Average Payment Period. Discuss the meaning of these ratios and their relevan..
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with nine years to maturity that is quoted at 115 percent of face value. What is ICU’s pretax cost of debt? If the tax rate is 30 percent, what is the af..
Calculate the time required to repay the loan, in years and months (at the new interest rate) if the loan instalment remains unaltered ($4,510.11). (g) In part (f), what will be the amount of the final monthly repayment?
Samuelson Company just issued a 20-year bond that pays $90 coupon payment paid annually. The fave value of the bond is $1,000. If the bond is being sold at $1,152.92, what is its yield to maturity?
Consider the following balance sheet (in millions) for an FI: Assets Liabilities Duration = 11 years $850 Duration = 2 years $740 Equity 110. What is the FI’s duration gap? What is the FI's interest rate risk exposure? How can the FI use futures and ..
Two portfolio managers are discussing the investment characteristics of amortizing securities. Manger A believes that the advantage of these securities relative to nonamortizing securities is that because the periodic cash flows include principle rep..
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