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Reading about portfolio composition and the importance of putting together a diversified portfolio, risk aversion, risk diversification, etc. However, the book states that simply putting together stocks with high correlation, regardless of number of stocks, will not achieve desired diversification, because you would still be exposed to similar industry risk, despite owning companies that are not similar at all.
The question is, Is this assumption correct when it comes to creating a portfolio with companies in the same industry, such as the financial industry? Can you achieve a diversified portfolio by holding companies in the same industry, the financial industry? Why or Why not?
IBM sells a Treasury bond futures agreement for $94,000. On the delivery date, the spot price is $95,000.- IBM sold the futures agreement to speculate. Does IBM win or lose? Explain.
The Eurodollar futures price for a contract maturing in 91 days is quoted as 89.5. What arbitrage opportunities are open to the bank?
Calculate the annual holding period return on this instrument and compare it to the annual return you were expecting.
Hugh created an irrevocable trust five years ago and transferred a $4 million whole-life policy to the trust. His wife, Meryl, will receive the income for life, with the remainder payable to her estate. What is the consequence of this transfer?
Tempura Inc. is considering two projects, and must do one of them. Project A requires an investment of $44,000. Estimated annual receipts for 20 years are $24,000; estimated annual costs are $12,500. What is the future worth of each project?
Benson Corporation announced that its net income for the year ended June 30, 2015 is $1,400,000. The company also reported EBITDA of $5,000,000, and depreciation and amortization expense of $1,250,000. If the company's income tax rate is 50 percent, ..
What is the accumulated sum of each of the following streams of payments?
What is the forecasted cost of the machine when it is replaced applying inflation rate?
Find the amount due on the maturity date of the note.
Which of the following is NOT a factor that determines the coupon rate of a company's bonds?
A $10,000 in student loans at 6% simple interest per year is paid back in one lump sum at the end of a 5 year grace period (i.e., interest is accrued but no payments are made). What is the amount of the lump sum payment at the end of year 5?
Debt: 5,000 5 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Common stock: 125,000 shares outstanding, selling for $62 per share; the beta is 1.2. Preferre..
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