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Return and risk are the two most important factors to consider when making investment decisions. They are positively related: in order to get higher returns (potential of higher returns), one needs to bear additional risks. However, there is no garanttee that you will have a higher return when taking on higher risk. We have discussed different methods that return and risk can be quantified. Below is the list of suggested topics for our discussion. Please feel free to extend to other related areas as we go along.
1. What is the difference between realized return and expected return? How each can be calculated? How to use these measures in personal investment decisions?
2. How can we compute risks on historical returns? How can we get risks for expected returns?
3. What is the relationship between risk and return historically? What implications does it have on your investment decisions?
4. Observe the stock market performance lately, what lessons can we learn? What's your personal opinion on investing in today's market?
5. Why corporate financial managers should be concerned about their company's stock price performance?
Fourteen years ago, your parents set aside $7,500 to help fund your college education. Today, that fund is valued at $26,180. What rate of interest is being earned on this account?
Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15 percent, a beta of 1.6, and a standard deviation of 30 percent.
Answer the Questions on Derivative instruments and Derivative transactions are designed to increase risk and are used almost exclusively
The current price of stock corp stock is $26.50 each share. Earnings next year should be $2 per share and it should pay a $1 dividend.
While on vacation in Brazil, Mr. Tall, a citizen of the United States, met Mr. Wide, a citizen of Brazil. Mr. Wide offered to sell Mr. Tall a vacation home in Brazil and to finance the purchase himself.
The Garcia Company's bonds have a face value of $1000 will mature in ten years and carry a coupon rate of 16%. Assume interest payments are made semi-annually.
What is the stock's value per share? Round your answer to two decimal places.
A share of stock currently pays a dividend of $5. The dividend is expected to grow at a 20% yearly for next ten years, then it will grow at a 15% rate for 10 more years
Calculate the NPV in U.S. dollars. (Show all calculations and ignore working capital)
Examine the complexities of derivative markets and how the reporting of derivatives may be deceiving to investors.
Rollins Company has a target capital structure consisting of 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Suppose the firm has insufficient retained earnings to fund the equity portion of its capital budget.
Penny's Concrete acquired 25% of outstanding common stock of Cardinal Inc on January 1, 2005, by paying $1,200,000 for 50,000 shares.
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