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Suppose John now has W = $4, 900 and foresees that there is 50% chance encountering a big loss of $4, 800 in the future. Assuming that John’s preference can be described by the utility:
U(W) = √ W
1) a) What is John’s expected future wealth?
b) What is John’s expected future utility?
c) If there is some insurance protection available that will cover John’s loss, what is the upper limit of the insurance premium charge so that John’s still willing to pay for having the insurance coverage? (Hint: this question is asking about what is certainty equivalent?)
Rocky Sales, Inc., has current sales of $1,170,994 and net income of $187,359. It also has a debt ratio of 43 percent and a dividend payout ratio of 56 percent. The company’s total assets are $785,099. What is its sustainable growth rate?
You have a payment that is due in 5 years for $50,000. You can earn a 5% safe rate of return on your money. a. How much would you have to set aside today meet this payment in the future? b. If your rate of return is 8%, how much would you have to set..
A company selling beseball gloves has fixed costs of $1800, and it costs an additional $26.51 to produce each glove. If the company charges a price of $168.95 per glove, how much should the company expect to cover in costs in order to earn a profit o..
Consider the following information on large-company stocks for a period of years. Series Arithmetic Mean Large-company stocks 13.1 % Small-company stocks 16.4 Long-term corporate bonds 6.2 Long-term government bonds 6.1 Intermediate-term government b..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $11 per share dividend in 10 years and will..
How does reinvestment risk differ from interest-rate risk? Identify and explain the four factors that influence asset demand. Which of these factors affect total asset demand and which influence investors to demand one asset over another?
Filer Manufacturing has 5 million shares of common stock outstanding. The current share price is $71, and the book value per share is $6. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $65 million, ..
A stock has had the following year-end prices and dividends: Year Price Dividend 1 $ 43.23 - 2 48.21 $ .39 3 57.13 .42 4 45.21 .55 5 52.13 .60 6 61.21 .68 What are the arithmetic and geometric returns for the stock?
A search of the Internet for a stock and bond of your choice that has historical data performance measures that you can evaluate for the last twenty years. Once you have completed your evaluation please explain your findings and which option would ha..
Describe the strengths and weaknesses of expense reduction, revenue enhancement, and contribution growth strategies.
Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.01, while in the 180-day forward market 1 Japanese yen = $0.0105. 180-day risk-free securities yield 1.35% in Japan. What is the yield on 180-day risk-free securities in t..
Ford’s current incentives include 4.9% financing for 60 months (monthly payments for 5 years) or $1000 cash back for a Mustang. Let’s assume a student wants to buy a Mustang convertible that costs $25,000, and she has no down payment other than the c..
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