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Use the following information of rates of return for Stock A and Stock B to answer;
Probability of State
State of Economy of Economy Return on A Return on B
Recession .50 -0.10 0.20
Boom .50 0.30 - 0.10
What can be said about the covariance between Stock A and Stock B? (This question has only 3 possible answer choices – no choice D and no choice E)
A. The covariance will be equal to zero or very close to zero
B. The covariance will be greater than zero
C. The covariance will be less than zero
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Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 5.9% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both companies are subject to a 34% federal-plus-state corporate tax..
The market price of a 4-year 6% coupon non-Treasury issue is $102.4083. Calculate the current yield. Calculate the yield to maturity. Compute the zero-volatility spread over the Treasury spot rate.
Trevi Corporation recently reported an EBITDA of $32,800 and $9,500 of net income. The company has $6,800 interest expense, and the corporate tax rate is 35 percent. What was the company’s depreciation and amortization expense?
You have just purchased a home by borrowing $400,000 for 30-years at a fixed APR of 3.87%. The loan payments are monthly and interest is compounded monthly. What is the periodic interest rate? (I.e., what is the monthly interest rate?)
Briefly explain what happens to the level of inventories when aggregate expenditure is greater than real GDP, what happens when aggregate expenditure is less than real GDP, and what happens when aggregate expenditure is equal to real GDP.
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