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True or False: Please explain.
1) If the risk-free rate of return is less than the inflation rate, the real rate of return is negative.
2) If the actual rate of return on an investment portfolio is constant from year to year, the standard deviation of that portfolio is zero.
3) Most assets show a slight degree of negative correlation.
The expected return on any asset is dependent upon its beta. Explain what Beta is, why it is used and its relevance to investment decisions.
What is the present value of the tax shield to a firm that has a capital structure consisting of $100million of perpetual debt and $180 million of equity, if then average interest rate on debt is 9%, the return on equity is 13%, and the marginal tax ..
Given the following information, what is the total cash flow to Class A investors in year 1? A CMO is being issued with 3 tranches. The A tranche will consist of $20M of principal and have a coupon of 7%. The B tranche will have a coupon of 7.5% and ..
The current price of a stock is $45, the annual risk-free rate is 6%, and a 1-year call option with a strike price of $60 sells for $7.20. What is the value of a put option, assuming the same strike price and expiration date as for the call option, a..
Assume that an investor acquired a property 5 years ago at a cost of $ 200000. The property was 15 years old at the time of purchase and was financed with a 75% mortgage at 11% interest for 25 years. The investor uses a straight line depreciation wit..
The Allied Corporation analyzes a project that requires an immediate outflow (an initial investment) of $455. Allied estimates that at the end of the first year the project will generate a positive cash flow of $660, but that at the end of the second..
What are some key financial differences between the three companies in the simulations? What primary advantages does your company bring to the table in a potential merger or acquisition? What sources of synergy are possible in your two potential tran..
Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You will be replacing 5 fully-depreciated vans, which you think you can sell for $3,800 apiece and which you could probably use for another 2 years ..
What happens to the present value of a cash-flow stream when the discount rate increases? Place this in the context of an investment. If the required return on an investment goes up but the expected cash flows do not change, would you be willing to p..
A manager believes his firm will earn a 11.50 percent return next year. His firm has a beta of 1.40, the expected return on the market is 9.0 percent, and the risk-free rate is 4.0 percent. Compute the return the firm should earn given its level of r..
Your portfolio allocates equal funds to the DW Co. and Woodpecker, Inc. DW Co. stock has an annual return mean and standard deviation of 11 percent and 34 percent, respectively. Woodpecker, Inc., stock has an annual return mean and standard deviation..
Muscarella Inc. has the following balance sheet and income statement data: Cash $ 14,000 Accounts payable $ 42,000 Receivables 70,000 Other current liabilities 28,000 Inventories 210,000 Total CL $ 70,000 Total CA $294,000 Long-term debt 70,000. Assu..
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