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Calculating Returns and Standard Deviations. Based on the following information, calculate the expected return and standard deviation for the two stocks.
Return if state occurs
Sate of Economy Possiblity of State of Economy Stock A Stock B
Bust .15 .02 -.30
Normal .55 .10 .18
Boom .30 .15 .31
Changes in sales cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverages? Should the asset investment and financing decisions be jointly determined, or should e..
Barnes’ Brothers has the following data for the year ending 12/31/10: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Tota..
A firm has 10 million shares outstanding with a market price of $30 per share. The firm has $10 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What i..
Suppose the prospective buyers of houses become more optimistic about the future prices of houses while at the same time existing owners of houses become more pessimistic about the future prices of housing. Explain what you think will happen to the c..
Because of the recession, the inflation rate expected for the coming year is only 3%. However, the inflation rate for yer 2 and thereafter is expected to be constant at some level above 3%. Assume that the real risk-free rate is r* = 2% for all matur..
Consider a spot exchange rate of $1.40/£ and a 3-month forward exchange rate of $1.43/£. Assume a 3-month interest rate of 7.6% p.a. in the U.S. and 4.8% p.a. in the U.K. Assume that you can borrow as much as $1,000,000. Determine whether interest ra..
Holmes, Inc., has offered $626 million cash for all of the common stock in Watson Corporation. Based on recent market information, Watson is worth $603 million as an independent operation. If the merger makes economic sense for Holmes, what is the mi..
Bolt Pty Ltd (hereafter referred to as ‘Bolt’) is an Australian technology company that develops and sells consumer electronics and software. Bolt is running a sale campaign for one of their popular mobile phone models – the Bolt Worldly. The Bolt Wo..
The Cowboys Christmas Company uses a required return of 11.3% to evaluate most projects of average risk. Suppose the company is looking at a new project that is lower-than-average-risk, and the CEO thinks the discount rate should be risk-adjusted. Wh..
He takes home the car today. No payments are required until the end of the fifth month, when he pays $680. Payments of $680 are then due every month until (and including) the end of month 13. What is the equivalent present value today of all payments..
If the exchange rate between dollars and pesos is pesos 8/$ and between dollars and pounds is $1.50/ pounds then what is the pound/peso exchange rate.
XYZ Corporation is examining a potential investment opportunity that will require the company to spend $120 million up front. The company will finance this project with $90 million in equity with a required return of 12% and with $30 million in debt ..
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