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You are considering investing in one of two well-diversified portfolios. Portfolio A has an expected return of 8% and a beta of 1.35 while Portfolio B has an expected return of 6% and a beta of 0.80. Assuming that you are a rational risk-averse investor and the risk-free rate is 2%, which of the two portfolios should you choose and why?
A. Portfolio A because it has a higher risk premium.
B. Portfolio B because it has less market risk.
C. Portfolio B because it has a higher reward-to-risk ratio.
D. Portfolio A because it offers a greater reward per unit of risk.
What is a lower bound for the price of a 2-month European put option on a nondividend-paying stock when the stock price is $58, the strike price is $65, and the riskfree interest rate is 5% per annum?
The current currency spot rate is $1.31 per euro. If dollar denominated interest rates are 3.0% and euro denominated interest rates are 4.0%, what is the likely dollar per euro exchange rate for a 2-year forward contract? Please show detail calculati..
Winnebagel Corp. currently sells 25,000 motor homes per year at $63,000 each, and 9,500 luxury motor coaches per year at $100,000 each. The company wants to introduce a new portable camper to fill out its product line; What is the amount to use as th..
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,080,000 and will be sold for $1,280,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax s..
The risk-free rate of return is 4.2 percent and the market risk premium is 11 percent. What is the expected rate of return on a stock with a beta of 1.8?
Discuss the advantages and disadvantages of margin accounts vs. cash accounts. State at least one advantage and disadvantage.
You have $36,800 on deposit with no outstanding checks or uncleared deposits. One day you write a check for $6,700 and then deposit a check for $4,300. What are your disbursement, collection, and net floats?
A struggling company has a positive cash flow, the cash flow is minimal. If something does not change soon, the company will go under. The product development team has just created a new product that will not only save the company from financial demi..
Because of a new product line, your company's sales over the last few months have increased significantly. As a result, the amount of cash held by the company has increased to levels never experienced before. What options do you have to deal with the..
Superapp Inc. has just paid a dividend of $10 per share. Superapp pays dividends once a year, and dividends are expected to grow at 4% per year. Superapp’s equity beta is 1.5. The market risk premium is 8%, and the risk-free rate is 2%. Based on this..
Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 89,000 2 102,000 3 116,000 4 111,000 5 92,000 Production of the implants will require $1,680,000 in net working capital to st..
At Tech Corp., Rob Hendricks is studying the vector valve department and finds that a new tool could be designed that would save $2,600 in material and $5,000 in labor per year. The current process will be used for five more years. What if Rob did no..
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