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Use the information in problem 12, and assume your client’s utility function is U = E(r) − (1/2) Aσ^2
(a) What is his optimal allocation y, if his risk aversion, A, is 2, 5, or 10?
(b) What happens to the allocation decision if your client becomes risk neutral (A approaches 0)?
(c) What if the expected return on your fund goes up to 20% (use A = 2)?
(d) What if the standard deviation of your fund return goes up to 35% (use A = 2)?
Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 34%
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If you were the financial manager of an organization and were deciding whether to use debt or equity to fund a project, what factors would influence your decision?
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Explain and discuss general power of appointment for property of a decedent, including the tax implications of appointing someone. Give some examples.
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A bond is a common investment opportunity. Suppose you have the opportunity to buy a bond with a par value of $1,000 and semi-annual coupon payments of $40 that matures in 10 years. Supposing this bond is available for $960, what is the payback perio..
Your client is 31 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $8,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average ret..
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