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Say there are two assets denoted by A and B. Let:
E(rA) = 10% E(rB) = 14%
σA = 8% σB = 18%
Further let the correlation coefficient between the returns of A and B be equal to -1 (ρA,B = −1). Lastly, let the risk-free rate be 3% (rf = 3%).
Create an arbitrage (earn a riskless profit which doesn't require use of your own money).
Consider an five-year, 12 percent annual coupon bond with a face value of $1,000. The bond is trading at a rate of 9 percent. What is the price of the bond? If the rate of interest increases 1 percent, what will be the bond’s new price?
A real estate developer purchased a piece of property at the end of December 2005 for $250,000. The developer sold it at the end of a few years later for $860,000 and was pleased to see that the annual rate of return was 16.7%. When was the property ..
Write a brief memorandum to the tax files that summarizes the advice you should give Ron - you notice that Ron has not reported any part of the award as income and has included the medical expenses in computing his itemized deductions.
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How would having information on the reason for returns and allowances and tracking these reasons help a business? Consider potential reasons for returns and what use the information can be in helping the company make decisions.
RentBooks.com is considering floating a bond offering and is attempting to determine what kind of interest rate they would be paying. The market price of comparable bonds is $314.64, face value of $533. The CEO of RentBooks.com, Frannie Kasper des..
Sports Corp has 10.3 million shares of common stock outstanding, 5.3 million shares of preferred stock outstanding, and 1.3 million bonds. If the common shares are selling for $25.3 per share, the preferred share are selling for $12.8 per share, and ..
Barry's common stock is currently selling for $50 a share. Its last dividend was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. What is Barry's estimated cost of common equity based on the CAPM approach?..
You Just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?
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