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XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30% weighting in a countercyclical stock. It is expected that there will be three economic states; Good, Average and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 25%, 5% and 1% in Good, Average and Bad economies respectively. The countercyclical stock is expected to have returns of -8%, 2% and 14% in Good, Average and Bad economies respectively. Given this information, calculate portfolio variance.
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Edward intends to retire in 20 years. Upon retirement, he will require a yearly cash flow of $70,000 for 25 years to support his lifestyle. Anticipating his retirement plan, he started investing $6,000 per year five years ago and will continue to do ..
Stock X and Stock Z both have an expected return of 10%. The standard deviation of the expected return is 8% for Stock X, and 12% for Stock Z. Assume that these are the only two stocks available in a hypothetical world. What is the expected return an..
Horse and Buggy Inc. is in a declining industry. Sales, earnings, and dividends are all shrinking at a rate of 10% per year. if r = 15% and DIV1 = $4, what is the price of a share? What price do you forecast for the stock one year from now? What is t..
You want to start a bakery business. For this, you will need a capital of $ 75,000 to start operating. If you have to operate within 4 years. That sum total should now invest 12% quarterly composite, the amount needed to keep and operate your busines..
Stock Y has a beta of .9 and an expected return of 11.2 percent. Stock Z has a beta of 0.5 and an expected return of 7.2 percent. If the risk-free rate is 5.0 percent and the market risk premium is 6.0 percent, the reward-to-risk ratios for stocks Y ..
According to the March 16, 2007 issue of The Value Line Investment Survey, the growth rate in dividends for Suncor Energy, Inc for the next five years is expected to be 7 percent. Suppose Suncor Energy meets this growth rate in dividends for the next..
A small company wishes to set up a fund that can be used for technology purchases over the next 6 years. Their forecast is for $18,000 to be needed at the end of year 1, decreasing by $2,000 each year thereafter. The fund earns 9% per year. How much ..
What difference does it make to the value of the bond and the value of the conversion option if the bond is callable any time within the first 2 years for $115?
The price of ABC stock is currently $42 per share, but in six months you expect it to rise to $50. ABC does not pay a dividend. You buy a six-month call on ABC, with a strike price of $45. The option cost $200. What holding period return do you expec..
Separately funded projects
Acme Corporation has a bond issue on the market that matures in 16 years, each bond has a $1,000.00 par value and pays an annual coupon. The bonds currently sell for a price of $1,233 each. If the market rate (yield to maturity) on this issue is 7% w..
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 12 percent, –12 percent, 19 percent, 24 percent, and 10 percent. What was the average real return on Crash-n-Burn’s stock? What was the average nominal r..
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