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Stocks A, B, and C all have an expected return of 10% and a standard deviation of 25%. Stocks A and B have returns that are INDEPENDENT of one another, i.e., their correlation coefficient, r, equals zero. Stocks A and C have returns that areNEGATIVELY CORRELATED with one another, i.e., r is less than 0. Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B. Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C. Which of the following statements is correct?
Portfolio AB has a standard deviation that is equal to 25%.
Portfolio AC has a standard deviation that is less than 25%.
Portfolio AB has a standard deviation that is greater than 25%.
Portfolio AC has an expected return that is greater than 25%.
Broussard Skateboard's sales are expected to increase by 15% from $7.4 million in 2015 to $8.51 million in 2016. Its assets totaled $5 million at the end of 2015. Broussard is already at full capacity, so its assets must grow at the same rate as proj..
Describe at least 5 bond provisions and discuss whether they make bonds more or less risky. Exercise: Consider two bonds, everything else the same except the provision. Would Bond A with the provision be more or less risky than Bond B without the pro..
Select three companies competing in the same product or service category. How does each differentiate and position itself and how do they execute these strategies in their marketing mixes? Which competitor is most successful? Which element(s) of the ..
XH zero coupon bonds have a face value of $1,000 and mature in 18 years. They currently sell for $80.81 today. How much interest does it accrue for tax purposes in the one year starting today?
Lucius Cadaver is the owner and president of Shady Rest Funeral Home, Inc. Shady Rest set up a non-qualified benefit trust for Lucius and his brother as the officers of the company. The trust provisions include an agreement to pay Lucius and his brot..
Assume the standard deviation of security A is 0.3 and the standard deviation of security B is 0.22. The correlation coefficient between A and B is 0.48. What is the standard deviation of a portfolio composed of 53% security A and 47% security B?
In the percent of sales method:
A Treasury bond that matures in 10 years has a yield of 5%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond?
You have purchased a call option contract on Smith & Smith common stock. The option contract is for 100 shares. The option has an exercise price of $ 43.00 and S&S’s stock currently trades at $40.00. The option premium is quoted at $ 2.00. If the sto..
You graduated with an MS degree in engineering and have a great job. Next month you start an automatic draft from your paycheck of $1000 each month, placing it into a mutual fund retirement account. If you retire 10 years after the last deposit and t..
Your firm needs a computerized machine tool lathe which costs $49,000 and requires $11,900 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. If the lathe can be sold for $4,900 at the end of year 3, wh..
Which one of the following is the pretax cost of debt?
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