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Two companies Amber and Bolt are manufacturers of glass. The securities of the companies are listed and traded in the New York Stock Exchange. An investor’s portfolio consists of these two securities in the proportion of 5/6 and 1/6 respectively. Amber’s security has an expected return of 20% and a standard deviation of 8%. Bolt has an expected return of 15% and a standard deviation of 5%. The correlation coefficient between the two securities is 0.6. Calculate the expected return and the standard deviation of the investor’s portfolio.
Calculate Ulwind’s MCC (marginal cost of capital) assuming that (1) it wants to maintain its current capital structure and (2) it will have to issue new shares of both preferred and common stock
Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.3 percent and a standard deviation of 9 percent.
Boyd Crowder's Chowder, Inc. desires a sustainable growth rate of 3.8 percent while maintaining a 49 percent dividend payout ratio and a 4.9 percent profit margin. The company has a capital intensity ratio of 1.21. What equity multiplier is required ..
Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 50% with a $5 million investment in plant and machinery.
Determine the growth rate of the company for each of next three years and Suppose after one year, everything else will be unchanged but the required rate on equity will decrease to 14%. What would be your holding period return for the year?
Forward versus Money Market Hedge on Payables. Assume that the Mississippi Airlines in the United States will need 450,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market h..
Compare and contrast the three tools used to deal with uncertainty in discounted cash flow analysis: scenario analysis, break-even analysis, and simulation.
Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 40,000 shares of stock. The debt and equity option would consist of 25,000 shares of stock plus $280,000 of debt wi..
Eastern Electric currently pays a dividend of about $1.65 per share and sells for $30 a share. If investors' required rate of return is 10%, what must be the growth rate they expect of the firm?
Prepare a brief report (3–5 paragraphs) on how equity financing compares to debt financing. What factors need to be considered when choosing an appropriate method? What advantages/disadvantages exist with each type?
If you put up $48,000 today in exchange for a 6.25 percent, 15-year annuity, what will the annual cash flow be?
Ultimate goal? Determine if Covered Interest Arbitrage is possible or not. State whether yes or no. Dollar amount available on a 90-day U.S. deposit Dollar profit over and above the dollar amount available on a 90-day U.S. deposit
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