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The management of Pitsos Ltd is considering the following two investments. The returns of these new projects depend on the state of the economy and they are shown below.
a) Calculate the expected return and risk associated with each security independentlyb) Combine the two investments into a portfolio consisting of 50% of A and 50 % of B and calculate the expected return and risk of the portfolio under conditions of:Perfect positive correlationPerfect negative correlationZero correlation
c) Comment upon your results and identify and discuss the major determinants of systematic and unsystematic risk. Explain why investors diversify their portfolios and what impact this has on the risk-return relation?
A steel factory has the right to discharge waste into a river. The waste reduces the number of fish, causing damage for fisheries. Let Q denote the quantity of waste dumped. Calculate the efficient quantity of waste. What would be the quantity dumped..
A stock is currently selling for $39. Over the next two periods, the stock will move up by a factor of 1.29 or move down by a factor of 0.53 each period. A call option with a struck price of $50 is available. If the risk-free rate of interest is 3.2 ..
Gramling Inc. is considering an investment in new operating equipment with a 15-year life. The new equipment will cost $300,000 and a one-time cost of $15,000 will be incurred to remove the old equipment and install the new equipment. Should Gramling..
problem 1what pairing of options would come closest to achieving the same risk management attributes of a eurusd six
The challenge of global promotion is not simply to communicate across culturally diverse country markets, but to also achieve integrated marketing messages among the different media forms used to reach targeted customers.
Rolodex Inc. Balance Sheet (in millions) shows retained earnings of $110 and $20 Common Stock (20 million shares at par). Rolodex expects to generate $140 million in net income and pay $2 per share in dividends. What is Retained Earnings for the purp..
Creative Solutions, Inc. has a successful brand with the name Top Goal. The market size in which Top Goal competes is $2 billion, and Top Goal has generated sales of $150 million. It has a contribution margin of 30%. Both brands (Top Goal and Peak Go..
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital 11%. What is the project's discounted payback period?
A few years ago Spider Web INC issued bonds with a 8.23 percent annual coupon rate paid semi annually. The bonds have a par value of $1000 a current price of $1092 and will mature in 20 years. What would the annual yield to maturity be on the bond if..
Your investments increased in value by 11.1 percent last year but your purchasing power increased by only 8.4 percent. What was the approximate inflation rate?
You were hired as a consultant to Keys Company, and you were provided with the following data: Target capital structure: 30% debt, 15% preferred, and 55% common equity. The after-tax cost of debt is 4.50%, the cost of preferred is 8.00%, and the cost..
In contrast to venture capital, commercial banks are notoriously conservative in lending to new business firms. What makes venture capitalists more eager to finance risky projects? Suppose you are very favorably considering a venture that has the fo..
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