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Problem 11-22 Portfolio Returns and Deviations Consider the following information about three stocks: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .30 .20 .25 .60 Normal .45 .15 .11 .05 Bust .25 .01 − .15 − .50 a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C , what is the portfolio expected return? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) Portfolio expected return % a-2. What is the variance? (Do not round intermediate calculations and round your final answer to 5 decimal places. (e.g., 32.16161)) Variance a-3. What is the standard deviation? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Standard deviation % b. If the expected T-bill rate is 3.80 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Expected risk premium % c-1. If the expected inflation rate is 3.50 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16)) Approximate expected real return % Exact expected real return % c-2. What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16)) Approximate expected real risk premium % Exact expected real risk premium %
Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $540,000 is estimated to result in $225,000 in annual pretax cost savings. The press falls in the MACRS five-year class, ..
The liquidity premium on a two year security is 1%. Based on the liquidity premium theory, what will be the one-year forward rate one year from now?
The CPI index increased from 244.4 to 255.9 over the year and the real rate is 4.33%. If you had $450 in the bank in the beginning of the year, how much do you have now?
Suppose that Son of Son of Unkempt Inc. common stock will pay an annual dividend next year of $14.05, has net income of $562 million, is keeping back $178 in retained earnings, has common book value of $9,289 million, what would the common stock be w..
Agency law plays a big part in corporate responsibility (and liability). Differentiate between an employee and an independent contractor. What is the difference and what are the key factors that must be considered in determining one’s status as an em..
Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 55; and it currently pays after 5 days and takes discounts. Lamar plans to expand, which will require additional financing. Assume 365 days in year for your calculation..
Which ONE of the following statements about the payback method is true? The payback method is consistent with the goal of shareholder wealth maximization. The payback method represents the number of years it takes a project to recover its initial inv..
Which of the following are relevant cash flows and what type of cost would you categorize them as given all the cost terms covered in this chapter? What are the potential differences in cash flow for a machine that is highly automated versus a machin..
What is capital budgeting? Why are capital budgeting decisions so important to businesses? b. What is the purpose of placing capital projects into categories such as mandatory y replacement or expansion of existing products, ser- vices, or markets? c..
Either Enterprise has 14 million shares outstanding with a market price of 20 per share. The firm has $23 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any de..
Proxicam, Inc., is expected to grow at a constant rate of 9.25 percent. If the company’s next dividend, which will be paid in a year, is $1.45 and its current stock price is $22.35, what is the required rate of return on this stock?
Which stock had the lowest monthly return and which stock had the largest monthly return? What month and year did these low and high returns occur?
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