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Stock Y has a beta of 1.01 and an expected return of 8.38 percent. Stock Z has a beta of .70 and an expected return of 7 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Risk-free rate %
An investor is interested in purchasing a 30-year government bond carrying a 10 percent coupon rate. The bond’s current market price is $950 for a $1000 par value instrument. What is the yield to maturity? Suppose the investor sells the bond at the e..
You own a stock portfolio invested 25 percent in Stock Q, 25 percent in Stock R, 20 percent in Stock S, and 30 percent in Stock T. The betas for these four stocks are 1.7, .6, 1.8, and .9, respectively. What is the portfolio beta?
Reality Automotive Corp. (“RAC”) manufactures after-market parts for automobiles and trucks (seat belts, windshield wiper blades, floor mats, and truckbed mats). The company is evaluating the expansion of its manufacturing plant to enable it to take ..
You are considering undertaking a land improvement practice that will cost you $120 per acre to establish and an additional $8 per acre to maintain over the next 10 years. Assuming a real discount rate of 4%, what is the present value of the total co..
The September T-bond futures contract is currently selling at 111-05 and September call option on T-bond futures for a strike price of 115-00 is currently quoting at 2-24. If an investor purchases one contract of the call option at the current market..
Compare and contrast straight-line depreciation and MACRS depreciation. Given the choice, would a firm prefer to use straight-line depreciation or MACRS depreciation? Why?
An investor has been following MSFT since its inception. He was an employee of the company for many years but does not own stocks or options in any company. He is concerned that the value of MSFT will unacceptably decline below $30. He therefore buys..
A stock has a beta of 1.05, the expected return on the market is 12 percent, and the risk-free rate is 4 percent. What must the expected return on this stock be? (Show your work.)
Cash conversion cycle American Products is concerned about managing cash efficiently. On the average, inventories have an age of 90 days, and accounts receivable are collected on 60 days.
Determine their after-tax cost assuming that: a. They won their case, and the IRS failed to demonstrate that its position was substantially justified. b. They won their case, but the IRS convinced the court that its position was substantially justifi..
Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 6%, paid annually. Today, the debt is selling at $1,130. If the firm’s tax bracket is 30%, what is its after-tax cost of debt?
Your company is considering two mutually-exclusive projects. Both require an initial outlay of $10,000 and will operate for 5 years. Project A will produce expected cash flows of $5,000 per year for years 1 through 5, whereas project B will produce e..
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