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Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 2% + 0.70RM + eA
RB = –1.8% + 0.90RM + eB σM = 22%;
R-squareA = 0.20; R-squareB = 0.15
What are the covariance and correlation coefficient between the two stocks? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answers to 4 decimal places.)
Covariance __________?
Correlation coefficient __________?
If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and..
It is January 2nd and senior management of Chester meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing $10,000,000 in bonds. Assume the bonds are issued at face value and levera..
Discussing each of the option pricing models and discussing the benefits and limitations of each model. Conclude with an explanation of which model represents the preferred model and/or whether each model should be used for specific types of options ..
Central City received $80,500,000 from the bond issue. Calculate the NIC and TIC interest rates for the bond issue. What would the values be if the bonds before 2026 were 4.2 percent and bonds 5 percent after 2026?
Formulate and solve an integer linear programming model to assist the park’s management to plan and schedule the number of new employees it hires each week in order to minimize the total number of new employees it must hire during the summer. It may ..
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Good cash management boils down to
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Consider two assets with expected return E(r1)=0.3, E(r2)=0.6; with variances σ12=0.1, σ22=0.25 and covariance σ12=0.15. Find the expected rate of return of Portfolio A. Find the standard deviation of the rate of return of Portfolio A.
Suppose Joe has the choice of two investments. He can invest in a bond, which in 10 years (not accounting for inflation), will have a 50% probability of a 50% return and a 50% probability of a 40% return. On the other hand, he could invest in a mutua..
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