i) Why has it seemed reasonable, from the standpoint of financial theory, that stock prices are approximately a Random Walk? Does the theory suggest a Random Walk is more likely than an AR-1 process (First-Order Auto regressive Process specifies that the output variable depends linearly on its own previous values) ? Explain.

ii) The old investing adage “don’t put all your eggs in one basket” sounds very simple: Don’t put your entire portfolio in one stock. But, is the mean-variance portfolio theory of Markowitz (1952) that we have learned during class so simple? Does the portfolio theory suggest putting one share of each stock in one’s portfolio? What kinds of factors does the theory imply that one must consider, and why?

## Calculate the equivalent interest rateFor simple interest of 5% for ten years, calculate the equivalent interest rate with (i) annual, (ii) quarterly and (iii) continuous compounding. Assume 30/360 daycount. |

## Company also has two bond issues outstandingDinklage Corp. has 5 million shares of common stock outstanding. The current share price is $71, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $65 million, a coupon of 6.. |

## Is price lower or higher of same bond in previous pointCalculate the price of a zero coupon with 10 years maturity, par value 100$ assuming that the 10-year zero coupon rate is 5%, the default and recover probabilities are 50%, and recovery rate of 50%. Is the price lower or higher of the same bond in th.. |

## Determine the amount of the discount and proceeds to herTasha signs a note for a discounted loan agreeing to pay $1200 in 8 months at an 18% discount rate. Determine the amount of the discount and the proceeds to her. Please assume that the interest rate is per year Please show work. |

## What is the company target debt-equity ratioFama's Llamas has a weighted average cost of capital of 11.5 percent. The company's cost of equity is 17 percent, and its pretax cost of debt is 8 percent. The tax rate is 33 percent. What is the company's target debt-equity ratio? |

## What is the target stock price in one yearFly Away, Inc., has balance sheet equity of $5.9 million. At the same time, the income statement shows net income of $885,000. The company paid dividends of $473,475 and has 150,000 shares of stock outstanding. If the benchmark PE ratio is 23, what i.. |

## Transfer of value from old shareholders to new shareholdersWhat is the price of Consolidated stock? What will be the transfer of value from the old shareholders to the new shareholders? |

## Passive and active equity portfolio management techniquesExplain the passive and active equity portfolio management techniques, providing examples where possible. How do the goals differ for portfolio managers for each technique? |

## Calculate the profitability index for projectYou are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 14 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Calculate.. |

## Additions to retained earnings-dividends per shareFor the most recent year, Seether, Inc., had sales of $437,000, cost of goods sold of $219,400, depreciation expense of $59,100, and additions to retained earnings of $51,300. The firm currently has 22,000 shares of common stock outstanding, and the .. |

## What are the factors driving this strategyDescribe Google’s investment strategy? What are the factors driving this strategy? How might shareholders eventually react to this strategy? |

## Life insurance and an individual universal life policyDan and Mary Green are in their mid-30s and have two children, ages 8 and 5. They have combined annual income of $95,000 and own a house in joint tenancy with a market value of $310,000, on which they have a mortgage of $250,000. As their ?nancial pl.. |

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