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Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: Year Large Company US Treasury Bill 1 4.00 4.62 2 14.49 4.96 3 19.33 3.88 4 –14.35 7.00 5 –31.84 5.38 6 37.04 6.43 a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Average returns Large company stocks % T-bills % b. Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Standard deviation Large company stocks % T-bills % c-1 Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the average risk premium over this period? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Average risk premium % c-2 Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Standard deviation %
Individuals who own homes may take a tax deduction for interest paid. Many individuals believe that this tax law discriminates against individuals who rent. Do you think this deduction is discriminatory? Explain and share your thoughts.
Atlantis Fisheries issues zero coupon bonds on the market at a price of $492 per bond. These are callable in 9 years at a call price of $550. Using semi annual compounding, what is the yield to call for these bonds?
A stock is expected to pay $0.80 per share every year indefinitely. If the current price of the stock is $18.90, and the equity cost of capital for the company that released the shares is 6.4%, what price would an investor be expected to pay per shar..
Medwig Corporation has a DSO of 42 days. The company averages $4,500 in credit sales each day. What is the company's average accounts receivable? Round your answer to the nearest dollar.
Assume interest rates for bonds today is 5% for an AAA rated bond. Calculate the price of the bond you have selected relative to the 5%. Is the bond selling at a premium or a discount? Why? Be sure to show how you arrived at your answer. What other f..
Imagine a corporation with $1,000,000 of assets and a debt ratio of 40%. ROE (return on equity) is expected to be 20% for the foreseeable future. Assume the firm keeps the same amount of debt indefinitely (as opposed to keeping the same debt ratio).
An open end mutual fund has average daily assets of $3.4 billion during the year. It sold $1.25 billion worth of stocks and bought $1.4 billion worth of stocks during the year. What’s its turnover ratio?
Prepare both the variable and the absorption costing income statements for January (b) Explain any difference between the net incomes (if any) under both methods.
What are the fundamentals of risk and return? How are they relative to standard deviation? How would a financial manager use them?
Consider a three-period ( t = 0,1, 2, 3 ) binomial option pricing model. There are 3-period put options on the stock. The values of the underlying variables are S = $50, n = 3, K = $48, u =1.1, d = 0.9, r =1.02 (a) what is the risk-neutral probabilit..
What's the future value of a 5%, 5-year ordinary annuity that pays $600 each year? An investment will pay $100 at the end of each of the next 3 years, $250 at the end of Year 4, $400 at the end of Year 5, and $500 at the end of Year 6. Find the inter..
Which models have the greatest following, discounting models (like IRR and NPV) or non time value of money models (like payback and accounting rate of return)?
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