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Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .20 .34 .46 .50 Normal .40 .25 .23 .20 Bust .40 .03 −.25 −.42 If your portfolio is invested 35 percent each in A and B and 30 percent in C, what is the portfolio expected return? What is the variance? What is the standard deviation? If the expected T-bill rate is 4.50 percent, what is the expected risk premium on the portfolio? If the expected inflation rate is 4.00 percent, what are the approximate and exact expected real returns on the portfolio? What are the approximate and exact expected real risk premiums on the portfolio?
Discuss unethical behavior that can result if the wrong performance measures are used to tie performance measures to compensation.
The use of accelerated depreciation
You are considering two mutually exclusive projects. Project A has cash flows of -$125,000, $51,400, $52,900, and $63,300 for years 0 to 3, respectively. Should you accept or reject these projects based on IRR analysis?
During periods of high inflation, U.S. firms have strong incentives to purchase short-lived assets and frequently replace them, rather than investing in long-lived assets. True, False, Uncertain and Explain
Caan Corporation will pay $3.56 per share dividend next year. The company pledges to increase its dividend by $3.75 per cent per year indefinitely. If you require a return of 11 percent on your investment, how much will you pay for the company's stoc..
A company just paid out an annual dividend of $2. If the annual dividend is maintained at the same level for the next 5 years, and grows at 5% annually thereafter, what should be the price of a share today? Assume that the required rate of return for..
The current 3-month Treasury bill has an YTM of 3%. By carefully picking stocks and their weights in the portfolio, Connor managed to form a portfolio that gives him a guarantee return in 3 months. How much should this guarantee return be? Why?
Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $20 million. The equipment will be fully depreciated using the straight-l..
Hot Wings, Inc., has an odd dividend policy. The company has just paid a dividend of $8.50 per share and has announced that it will increase the dividend by $6.50 per share for each of the next four years, and then never pay another dividend.
Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 33%. The T-bill rate is 7%. Stock A 30 % Stock B 35 % Stock C 35 % A client prefers to invest in your portfolio a proportion (y) that maximize..
Your firm is contemplating the purchase of a new $630,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $42,000 at the end of that time.
Corvallis Corporation stockholders expect a growth rate of 4% in the company, and a dividend of $2.50 next year. The WACC of Corvallis is 11.5%. There are 5 million shares of the common stock, selling at $25 per share. The company also has $60 millio..
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