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You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 9 percent and 14 percent, respectively. The standard deviations of the assets are 25 percent and 33 percent, respectively. The correlation between the two assets is.33 and the risk-free rate is 4.2 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and Probability answer to 2 decimal places. Omit the "%" sign in your response.)
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 15,000 shares of stock outstanding, currently worth $30 per share. Beta Corporation uses leverage in its cap..
You manage an equity fund with an expected risk premium of 11% and a standard deviation of 24%. The rate on Treasury bills is 6.2%. Your client chooses to invest $80,000 of her portfolio in your equity fund and $20,000 in a T-bill money market fund. ..
Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $41,000; it is now five years old, and it has a current market value of $18,000. The old oven is being depreciated over a 10-year life toward..
Present and critically comment on the following risk-adjusted measures of hedge fund performance
Our new project proposal will require roughly 500 hours of total staff time and $1,000 in materials. Our total staff budget is $520,000 for 10 full time equivalents (FTE). How much will our new proposal cost the taxpayers?
Does CMOS have an unrealized gain or loss on the derivative for the period? On the bonds? Will earnings increase or decrease due to the hedging arrangement? Why?
BREAK-EVEN ANALYSIS Perform a break-even analysis for the following scenario. Assume you sell widgets. You have total fixed costs of $12,000. Your manufacturing and shipping of widgets costs $7 per widget. You sell each widget for $22. What is your b..
Patriot Corp. compensates executives with 10-year European call options which is granted at-the-money. If there is a signi?cant drop in the share price, the company’s board will reset the strike price of the options to equal the new share price. the ..
Describe how Marsden Ltd could use a bear spread to hedge its position. Assume the spot rate of the Canadian dollar in one month is £0.48. Was the hedge effective?
Is there credit risk in an interest rate swap with an intermediary bank serving as the swap dealer? Describe when default losses might arise and which party is at risk. Explain how credit risk can be reduced.
Think of something you want or need for which you currently do not have the funds. It could be a vehicle, boat, horse, jewelry, property, vacation, college fund, retirement money, etc. Select something which costs somewhere between $2,000 and $50,000..
Which of the following statements regarding the tax implications of key employee life insurance is correct?
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