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Question1. Assume you know that someone invested $1,500 in the Ec140 mutual fund 10-years ago [and they reinvested all dividend and capital gains distributions]. You now learn that their balance in the fund has increase to $9,245. (a) What has the geometric rate of return been for the Ec140 fund for the last ten years? (b) What do you know about the arithmetic mean of the returns over the last 10 years?
Question2. You manage an equity fund with an expected risk premium of 8% and an expected standard deviation of 15 percent. The rate of return on perfectly safe Treasury Bills is 2 percent. Your client chooses to invest $70,000 of her portfolio in your equity fund and $30,000 in T-bills. What is the expected return and standard deviation of return on her portfolio?
There are times when the data can give you some inaccurate predictions. Personally, when I audit a firm, I typically use five years worth of information.
Evaluate the present value of a $270 cash flow for the following combinations of discount rates and times:
The stock of ABC Corporation is selling for $42 per share. You put in a limit buy order at $37 for one month During the course of the month the stock price declines to $30 each share and then rises to $52 each share.
Ezzell Company issued preferred stock with a stated dividend of 10% of par. Preferred stock of this type currently yields 8 percent, and the par value is $100. Suppose dividends are paid annually.
Find out the present value of a perpetuity of $100 per year if the appropriate discount rate is 7%?
You plan to deposit $250 into the savings account for each of five years, beginning 1 year from now. Interest rate is 9% compounded annually. Find out the future value in each of the following cases.
Would better internal controls have prevented any of the biggest corporate scandals over the past few years? Provide examples and explain.
Managers should learn how to use statistical techniques to time, and forecast, as accurately as possible, changes in basic micro and macroeconomic factors.
ABC Corporation will earn $60 if it does well. The debtholders are promised payments of $35 if the firm does well. If corporation does poorly, expected earnings will be $30 and the repayment will be $20 because of dead weight cost of bankruptcy.
Suppose Cisco Systems pays no dividends but spent 5 billion dollars on share repurchase last year. What stock price does this correspond to?
Ki is the required rate of return that we are solving for ; Rf is the risk-free rate; and we shall assume it is 4.6 percent; bi is the systematic risk of a stock that we will estimate;
Mark wants to buy a new car in three years. The car is expected to cost 80,000 in 3 years. If Mark can find an investment yielding 12% over the three year period,
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