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The prices and other information of two stocks in the market are listed in the table:
You have $100 of your own money that you are going to invest in the market according to one of two trading strategies. In strategy A, you use margin purchase by borrowing an amount of money that is equal to your own money with an interest charge of 10%. In strategy B, you are allowed to short sell stocks that the value of the short position is equal to your own money. Then you are able to use your own money and the proceeds from short sale for further investment. Assume no margin deposit requirement and no other fee charge. The correlation coefficient of returns between the two stocks is 0%. Required: (1) If you use strategy A (margin purchase), what is the maximum total $ return and rate of return achievable on your own money (i.e.: calculated on your investment)? (2) If you use strategy B (short sale), what is the maximum total $ return and rate of return achievable on your own money (i.e.: calculated on your investment)? (3) Assume that you have unlimited money and you do not borrow money or short sell stocks, what is the expected return and risk (standard deviation) of your global minimum risk portfolio with the investment in the two stocks?
Nonproduction expenses such as marketing, research and development, and general administrative costs can play an important role in a company's ability to meet long-term goals. Discuss how the budgets for each of these costs contribute to the company'..
Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 9 percent per year indefinitely. The required return on this stock is 11 percent,..
At the beginning of the year, a firm has current assets of $330 and current liabilities of $234. At the end of the year, the current assets are $497 and the current liabilities are $274. What is the change in net working capital?
Bond P is a premium bond with a 9 percent coupon. Bond D is a 5 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 7 percent, and have 10 years to maturity. What is the current yield for Bond P and Bon..
Which of the following is not true regarding a revolving credit agreement
A common stock will pay a dividend next year (i.e., at t=1) of $5.00. For three years after that (i.e., for t=2, t=3, and t=4), the dividend will grow at 7% per year. After t=4, the dividend will grow at 3% per year, forever. If the opportunity cost ..
Bond J is a 6.2 percent coupon bond. Bond K is a 10.2 percent coupon bond. Both bonds have 20 years to maturity and have a YTM of 6.9 percent. a. If interest rates suddenly rise by 1 percent, what is the percentage price change of these bonds?
Abrams Steel Company has very high operating leverage due to the capital intensive nature of the steel business. Abrams' CEO is concerned about the variability in the firm's EPS if sales should drop, and decides to take action. Which of the following..
Ethier Enterprise has an unlevered beta of 1.25. Ethier is financed with 45% debt and has a levered beta of 1.45. If the risk free rate is 5.5% and the market risk premium is 5%, how much is the additional premium that Ethier's shareholders require t..
Fee Founders has perpetual preferred stock outstanding that sells for $48.00 a share and pays a dividend of $4.00 at the end of each year. What is the required rate of return?
Posting a $600 debit as a $ 600 credit in the Cash account
Complete a preliminary analysis of the financial information. Evaluate materiality based on the information you've been given and justify your calculation.
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