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A fundamental concept in finance is the risk versus return concept. The more the risk involved with an investment, the greater will be the required rate of return for that investment. Different investors have different risk tolerance levels. Some investors may choose not to invest in stocks because they do not like the volatility of the stock market. Others may choose more conservative approaches, such as investing in high quality, intermediate-term bonds, because they prefer the reduced volatility of such an investment as compared to the stock market. From 1926 through 2008: Small-company stocks had an arithmetic mean return of 16.4% and a standard deviation of 33%. Large-company stocks had an arithmetic mean return of 11.7% and a standard deviation of 20.6%. Long-term corporate bonds had an arithmetic mean return of 6.2% and a standard deviation of 8.4%. Long-term government bonds had an arithmetic mean return of 6.1% and a standard deviation of 9.4%. Intermediate-term government bonds had an arithmetic mean return of 5.6% and a standard deviation of 5.7%. U.S. Treasury bills had an arithmetic mean return of 3.8% and a standard deviation of 3.1%. Sources: Adapted with permission from Ibbotson, R. G., & Sinquefield, R. A. (2009). Stocks, bonds, bills and inflation yearbookTM. Chicago: Morningstar. Ross, S. A., Westerfield, R. W., & Jaffe, J. (2010). Corporate finance. New York: McGraw-Hill. Historically, large U.S. stocks have produced higher average annual returns than U.S. Treasury bills. However, in some years, such as 2008, the U.S. Treasury bills outperformed large U.S. stocks. Why do you think this happened?
The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.
Evaluate how finance companies are exposed to various forms of risk. Identify the factors that determine the values of finance companies. What are the intrinsic and market risk factors and what are their affect on investment companies' performance..
Calculate the excersie value of the firm's warrants if the common sells at each of the following prices.
Computation of amount to be saved for tuition and so far with monthly payments from $250 to $800 in $50 increments
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Suppose Raines Umbrella Corp. paid out $61,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what is the net new long-term debt?
Mack Industries just paid a dividend of $1 each share. Analysts expect the company's dividend to grow 20 percent this year, and 15 percent next year.
There are 25 years to maturity. Compute the price of the bonds based on semiannual analysis. With 20 years to maturity, if yield to maturity goes down substantially to 8 percent, what will be the new price of the bonds?
On Sept 22, Year 4, Yumi Corp, purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency.
If the receivable turnover ration is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson's incremental return on new average investment be?
The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value?
The US dollar is the world's reserve currency. China, Russia, and other smaller countries are increasingly voicing a desire for a new currency to replace the US dollar as the world reserve. Why?
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