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Consider two stocks, Stock D, with an expected return of 10 percent and a standard deviation of 25 percent, and Stock I, an international company, with an expected return of 8 percent and a standard deviation of 18 percent. The correlation between the two stocks is –.11. What is the weight of each stock in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Weight of Stock D?
Weight of Stock I?
Clapper Industries reported taxable income of $290,000. What is Clapper’s marginal tax rate based on the corporate tax rate table in this appendix? What is Clapper’s average tax rate? If Clapper’s taxable income increases to $410,000, what will be Cl..
A firm has a current capital structure consisting of $500,000 of 14 percent annual interest debt and 80,000 shares of common stock. The firm's tax rate is 40 percent on ordinary income.
A company could sell $125 million in bonds to finance an aquisition. The annual interest rate would be 6.5% and they would mature in 15 years. Annual principal repayments of $6.25 million would be required, leaving $37.5 million outstanding at maturi..
A company currently pays a dividend of $2.0 per share. It is estimated that the company's dividend will grow at a rate of 20% per year for the next 4 years, and that the dividend will grow at a constant rate of 7% thereafter. What is your estimate of..
Which of the following is not a true statement about mutual funds?
Bond X is non callable and has 10 years to maturity, a 9% semi annual coupon, and a $1000 par value. Your required return on Bond X is 5%, and if you buy it, you plan to hold it for 3 years. You (and the market) have expectations that in 3 years, the..
Why is it important to use market-based weights rather than balance sheet weights when estimating a company's weighted average cost of capital?
Suppose you deposit $8,000 in 3 years, $3,000 in 6 years, and $9,000 in 8 years. How much will you have in your account after 8 years if the account earns 3% compounded annually?
NPV versus IRR Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 14 percent. To be prudent, you compute the NPV for both projects. Which projec..
Peir Inc. is considering a project that contributes $10,000 at the end of the first year and $5000 at the end of the second year? The initial cost of the project is $8,000. What is the net present value of the project at a 10% discount rate?
Meyer & Co. expects its EBIT to be $78,000 every year forever. The firm can borrow at 7 percent. Meyer currently has no debt, and its cost of equity is 12 percent. If the tax rate is 35 percent, what is the value of the firm? What will the value be i..
Surplus and Deficit Units Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a deficit unit in your relations..
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