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The risk free rate on Treasury bill is very low right now. Let's say it is 0.25%, annualized.
Suppose, you also looked up the annual rate of change in the S&P500 market index, and it is 7%.
You are considering a stock with a beta that is 10% less volatile than the overall market beta, which is always presumed to be 1
What is the minimum level of annual return that you would require on this investment? Explain and show calculations using the CAPM.
Daniel Silva is 40 years old today. He is planning for his retirement in twenty-five years when he turns 65.For each of the next 25 years, he will be saving $15,000 in his retirement account; the amounts to be saved at the end of each year. How much ..
In the context of Property and Liability insurance, explain the differences between low-severity, high-frequency lines and high-severity, low-frequency lines. For which of these lines will insurance companies charge a higher premium?
A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 25%, while stock B has a standard deviation of return of 19%. Stock A comprises 70% of the portfolio, while stock B comprises 30% of the portfolio. If the v..
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 30 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in o..
A company is deciding on investing in one of two mutually exclusive pieces of equipment: Equipment A and Equipment B. If the firm expects a 8% per year return on investment, which of the following alternatives should they choose. Explain. Use future ..
With celebrity bonds, celebrities raise money by issuing bonds to investors. The royalties from the sales of the music are used to pay interest and principal on the bonds. In April of 2009, EMI announced that it intended to securitize its back catalo..
Some new production machinery has a first cost of $100,000 and a useful life of 10 years. Its estimated O&M costs are $10,000 the first year, which will increase annually by $4,000. Determine the after-tax cash flows. The property’s economic service ..
Big Rapids Homes has a bond issue outstanding that pays $60 annual coupon paid semi-annually and matures in 30 years. The bonds have a par value of $1,000 and a quoted market price of 95.5. What is the yield to maturity?
Suppose a stock had an initial price of $96 per share, paid a dividend of $2.70 per share during the year, and had an ending share price of $77.50. Compute the percentage total return. What was the dividend yield? What was the capital gains yield?
Capital budgeting criteria: ethical considerations A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. Calculate the NPV and IRR wit..
You want to buy a house, and you can make an initial payment of $20,000 and can afford monthly payments of at most $1,500. If the APR on variable-rate mortgage loans is 3.6% and you finance the purchase over 30 years, what is the maximum price you ca..
A U.S. investor bought a 6 year German federal bond (Bund), the face value of the bonds is 1,000 EUR, the coupon is 1.5%, and the price 1, 125 EUR. At the time of buying the bond, the exchange rate was 1.3824 [USD/EUR], now, three years later, find t..
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