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Consider the following information:
Risky Assets: A B
Expected return: 12% 8%
Standard deviation: 25% 14%
Correlation: .3
Risk-free rate = 3% (Treasury Bill Rate)
e- Find the Sharpe ratio based on the optimal portfolio. Make sure to show your work.
The Johnsons have accumulated a nest egg of $15,000 that they intend to use as a down payment toward the purchase of a new house. Because their present gross income has placed them in a relatively high tax bracket, they have decided to invest a minim..
If you were risk-averse and deciding how much to forward on an item not yet produced, you are uncertain about the spot price at production time and the eventual size of the production. What would be a good approach to forward? IE. always sell forward..
Due to a recession, expected inflation this year is only 2%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2%. Assume that the expectations theory holds and the real risk-free rate is r*=3.25%. If..
Aberdeen Outboard Motors is contemplating building a new plant. The company anticipates that the plant will require an initial investment of $2.11 million in net working capital today. The plant will last 10 ?years, at which point the full investment..
Common stock of Fairfax Paint is currently priced at 90.39 dollars per share. The stock is expected to pay annual dividends that are expected to grow by 4.26 percent forever. The next dividend is expected in 1 year and the expected annual return for ..
General Matter’s outstanding bond issue has a coupon rate of 8.2%, and it sells at a yield to maturity of 7.25%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face..
Suppose you create a portfolio by holding 100 shares of McDonald’s stock, writing a call option on the stock with an exercise price of $55 and one year to expiration, and writing a put option on the same stock with an exercise price of $25 and one ye..
What does the yield curve represent? What does the cost of capital represent?
Assume that the company has a current ratio of 1.2. Now, which of the above actions would improve this ratio? Modern Medical Devices has a current ratio of 0.5. Which of the following actions would improve (i.e., increase) this ratio? Use cash to pay..
Which of the following types of life insurance has an investment component?
Explanation of the growth in the subprime mortgage lending market since the turn of the century.
If the YTM on these bonds is 5.16 percent, what is the current bond price?
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