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Assume N securities. The expected returns on all the securities are equal to 0.01 and the variances of their returns are all equal to 0.01. The covariance’s of the returns between two securities are all equal to 0.005.
What are the expected return and the variance of the return on an equally weighted portfolio of all N securities?
What value will the variance approach as N gets large?
What characteristic of the securities is most important when determining the variance of a well-diversified portfolio?
A company's 5-year bonds are yielding 7.8% per year. Treasury bonds with the same maturity are yielding 4.9% per year, and the real risk-free rate (r*) is 2.1%. The average inflation premium is 2.4%, and the maturity risk premium is estimated to be 0..
The existence of unemployment compensation most likely will cause less unemployment.
Risk and Return
What is the net profit/loss of the following options? A call option written on FB has an exercise price of $60 with a premium of $5. Currently FB is trading at $70 per share. A call option written on BAC has an exercise price of $20 with a premium of..
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.2 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected..
as your project for financial and performance management you will prepare and submit a consultancy report to the
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As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow? Sales revenues $13,600 Depreciation $4,000 Other operating costs $6,000 Tax rate 35.0%
The current price of a stock is $400 per share and it pays no dividends. Assuming a constant interest rate of 8% per year compounded quarterly, what is the stock's theoretical forward price for delivery in 9 months?
Swerling Company is considering a project with the following cash flows. What is the payback period of the proposed Swerling Company project? What is the net present value of the proposed Swerling Company project if the discount rate is 6%? What is ..
Tim and Denise just bought a very old house. They love the charm of it but know it will need a major remodel within the next 10 years. The plan is for the remodel to take 2 years with $10,000 being spent on electrical upgrades during year one and $10..
You have a loan of $25,000 and will repay the loan over 5 years at 8% interest. What is your loan payment? What does the amortization schedule look like?
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