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You are currently only invested in the Natasha Fund (aside from risk-free securities). It has an expected return of 14% with a volatility of 20%. Currently, the risk-free rate of interest is 3.8%. Your broker suggests that you add Hannah Corporation to your portfolio. Hannah Corporation has an expected return of 20%, a volatility of 60%, and a correlation of 0 with the Natasha Fund.
a. Is your broker right?
b. You follow your broker's advice and make a substantial investment in Hannah stock so that considering only your risky investment, 60% is in the Natasha Fund and 40% is in the Hannah stock. When you tell your finance professor about your investment, he says that you made a mistake and should reduce your investment in Hannah. Is your finance professor right.
c. You decide to follow your finance professor's advice and reduce your exposure to Hannah. Now Hannah represents 15% of your risky portfolio, with the rest in the Natasha fund. Is this the correct amount of Hannah stock to hold?
The tax rate is 33 percent and the required return for the project is 15 percent. What is the net present value for this project?
Discuss the qualitative concept of comparability. In your opinion, would the financial statements of companies operating in one of the foreign countries listed above be comparable to a U.S. company's financial statements? Explain.
What is the relationship between the current yield and YTM for premium bonds? For discount bonds? For bonds selling at par value?
Suppose you are planning investing in a project with the following possible outcomes and compute the expected rate of return and standard deviation of returns for investment.
The Clearwater Aquarium Corporation will produce 66,000 ten gallon aquariums next year. Variable costs are 40% of sales while fixed costs total $133,200.
You have contracted to buy a $10,000,000 multi-family property with $2,000,000 cash down payment as equity and an $8,000,000 mortgage loan.
Will has been purchasing $25,000 worth of New Tek stock annually for the past 11 years. His holdings are now worth $598,100. What is the annual rate of return on this stock?
The probability of a normal economy is 65 percent while the probability of a recession is 25 percent and the probability of a boom is 10 percent. What is the standard deviation of these expected returns?
Verbal Communications, Inc., has 14,000 shares of stock outstanding with a par value of $1 per share and a market value of $32 per share. The firm just announced a 100 percent stock dividend. What is the market value per share after the dividen
The initial proceeds a bond, the size of issue, the initial maturity of bond, and the years remaining to maturity are shown in the following table for a number of bonds.
The firm has $10,400 in cash and owes a total of $1,430,000. The legal problems are personal and unrelated to the actual business. What is the market value of this firm?
Outstanding debt of Home Depot trades with a yield to maturity of 6%. The tax rate of Home Depot is 40%. What is the effective cost of debt of Home Depot?
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