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1. Suppose that Citigroup (C) has an expected return of 14%, while McDonald's (MCD) has an expected return of 8%. Find the expected return of a portfolio consisting of 75% C and 25% MCD. Show work and do not round. 2. This graph shows the annual returns for stocks A, B, and C over a seven year time period. Separately, the three stocks have about the same expected returns and standard deviations. a. Are stocks A and B positively correlated, negatively correlated, or not correlated? Explain. b. If your portfolio currently consists only of Stock A, would the addition of stock B cause risk reduction? Explain, using the appropriate terminology. c. Are stocks A and C positively correlated, negatively correlated, or not correlated? Explain. d. If your portfolio currently consists only of Stock A, would the addition of stock C cause risk reduction? Explain, using the appropriate terminology. 3. Interpret the betas shown by determining what we expect to happen to the stocks given the described market movement. Note that the last column is asking about a loss. Express your answer as a positive whole percent along with the word "gain" or "loss." (Example: 5% gain). Stock (Symbol) Beta Expected return if market gains 10% Expected return if market loses 5% General Mills (GIS) 0.20 Overstock (OSTK) 2.60 Emergent Bio-solutions (EBS) -0.40 4. Using the betas given above, find the beta of a portfolio consisting of 50% GIS stock, 30% OSTK stock, and 20% EBS stock. Show work. 5. You are going to hold a stock for one year. Over the year, you expect the overall market to return 12%, and you expect the yield on the 3-month treasury bill to be 2%. Use the CAPM equationto answer the following questions. a. The beta of United Parcel Service (UPS) is about 0.8. What must you require regarding the return on United Parcel Service in order to justify the risk of owning it over the next year? Give a numerical answer and show work. b. The beta of Apple (AAPL) is about 1.5. What must you require regarding the return on Apple in order to justify the risk of owning it over the next year? Give a numerical answer and show work. c. Suppose that you expect to earn an internal rate of return of 15% on AAPL stock. According to the guidelines in the text, would this be an acceptable investment? Explain. 6. An investor has the following portfolios available: Portfolio X, with expected return 8% and standard deviation 9% Portfolio Y, with expected return 8% and standard deviation 12% Portfolio Z, with expected return 10% and standard deviation 12% a. We can say for sure that Portfolio X is superior (efficient) compared to Portfolio Y. Explain how we know. b. Can we make the same sort of definite choice between Portfolio Y and Portfolio Z? Explain. c. Can we make the same sort of definite choice between Portfolio X and Portfolio Z? Explain.
Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? Explain.
Elucidate what would you expect to happen to the nominal yields changes in inflation expectations and required real yields occurred.
The injections-withdrawals approach, complete the table again and demonstrate that the point you chose in question 4 is the equilibrium now.
Is it true that in a short run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output?Explain your answer.
Explain how would it change as PM Company adopts additional international market expansion strategies. How long and what will it take to actually change the organizational structure.
In a random sample of 99 NBA games, the home team won 57 games. Test the null hypothesis that the home team wins one-half of all games against the alternative that the home team wins a majority of games.
Describe the spot and 12-month forward exchange rates and determine any change in the ROS repatriated in 12 months based on exchange rates versus the current forecast.
Suppose past year's real GDP was $7,000 billion, this year nominal GDP is $8,820 billion, and GDP deflator for this year is 120. Determine the growth rate of real GDP? Does this demonstrate an improvement in economic welfare?
Long Run Costs Suppose the firm has only three possible scales of production as shown below: a. Which scale of production is most efficient when Q =65 b. Which scale of production is most efficient when Q = 75 c. Trace out the long-run average cost c..
Explain how a change in investment can have big impact on GDp causing nationwide slump. Recall that investment is "small' relative to the whole economy.
How does the Federal Reserve increase or decrease the money supply and what might cause the Fed to change the supply?
Suppose the equilibrium price for apartments is $500 per month and the government imposes rent controls of $250. Which of the following isunlikely to occur as a result of the rent controls?
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