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Ms. Bethel, manager of the Humongous Mutual Fund, knows that her fund currently is well diversified and that it has a CAPM beta of 1.0. The risk-free rate is 8% and the CAPM risk premium, [E(R,„) - RA, is 6.2%. She has been learning about APT measures of risk and knows that there are (at least) two factors: changes in the industrial production index, ,51, and unexpected inflation, 52. The APT equation is
a) If her portfolio currently has a sensitivity to the first factor of bp, = - .5, what is its sensitivity to unexpected inflation?
b) If she rebalances her portfolio to keep the same expected return but reduce her exposure to inflation to zero (i.e., bp2 = 0), what will its sensitivity to the first factor become?
Describe the dividend theories: dividend irrelevance, dividend preference, tax effect theory, clientele effect, and signaling hypothesis.
During 2014, Gutter Company. Had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The non-convertible preferred stock has a par value of $100 per share. Gutter did not declare or pay any dividends during ..
Growth is expected to be constant after 2015, and the weighted average cost of capital is 10.45%. What is the horizon (continuing) value at 2016 if growth from 2015 remains constant?
A bond with a coupon rate of 6% makes semiannual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on January 30 at 100:03. What is the invoice price of the bond? The coupon period has ..
Individuals performing ratio analysis include (1) banks evaluating potential loan applications from small businesses, (2) investment analysts evaluating the investment quality of a firm’s stock, and (3) internal management, assessing the firm’s curre..
You are considering your retirement, and would like to have accumulated $2,295,734 by the time you retire in 34 years. If you anticipate that your average compounded rate of return over the 34 years until retirment will be 13%, how much will you need..
After spending $300,000 for research and development, chemists at Diversi- fied Citrus Industries have developed a new breakfast drink. The drink, called Zap, will provide the consumer with twice the amount of vitamin C currently available in breakfa..
Bond P is a premium bond that carries a 10% coupon rate. A separate bond-Bond D is a discount bond and has a 4% coupon rate. Each of these bonds makes an annual payment (not semi annual) and has a 7% YTM with 10 full years until they mature. Assume t..
Determine the amounts of non operating assets and financial claims related to the retiree health and life benefits plans and pension plans that would be included in a valuation of GE.
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $13007, which will be depreciated straight-line to zero over its four-year life. what is the project’s average acc..
Discuss the compensation and/or benefits strategies organizations have utilized related to the calculation of employees vacation time, along with a review of their success and failure. Information regarding other organizations should be gathered thro..
You purchased a five year annual payment 6% coupon bond for $1,000 and you planned on holding it to maturity. However right after you bought the bond it was called at $1,043.29 when all interest rates fell to 5% and remained there for the full five y..
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