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Stock Y has a beta of 1.2 and an expected return of 13.7 percent. Stock Z has a beta of .8 and an expected return of 9.5 percent. If the risk-free rate is 5.3 percent and the market risk premium is 6.3 percent, the reward-to-risk ratios for stocks Y and Z are---------- and --------- percent, respectively. Since the SML reward-to-risk is -----------percent, Stock Y is undervalued and Stock Z is overvalued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Use the following information to estimate the marginal cost of issuing a $ 1 million CD paying 3.25 percent interest. It has a one- year maturity and the following estimates apply relative to the balance obtained: Acquisition costs = 1/ 8 of 1 percen..
Big Sky Hospital plans to obtain a new MRI that costs $2.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the equipment. Assume now that the salvage value estimate i..
You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money: Capital Cities ABC, Inc. bonds with a par value of $1,000 and a coupon interest rate of 8.75 percent, are ..
A European call option allows one to purchase 2 shares of stock B with 1 share of stock A at the end of a year. A European put option which allows one to sell 2 shares of stock B for 1 share of stock A costs 11.5. Determine the premium of the Europea..
Which of the following statements is correct? Portfolio diversification reduces the variability of the returns on the individual stocks held in a portfolio. Portfolio A has but one security, while Portfolio B has 100 securities.
Kinky Copies may buy a high-volume copier. The machine costs $210,000 and will be depreciated straight-line over 5 years to a salvage value of $38,000. Kinky anticipates that the machine actually can be sold in 5 years for $49,000. The firm’s margina..
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $60,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value.
Variable costs, fixed costs, and project risk. Solutions Bank Textbooks had sales and operating expenses of $1 million last year. If the firm had fixed costs of $300,000 on sales of 35,000 books, then what is the firm's per-unit contribution?
Using the risk-adjusted discount rate approach, the firm's weighted average cost of capital is applied to projects with: Select one: a. no risk b. low risk c. normal risk d. high risk
Earnhardt Driving School’s 2010 balance sheet showed net fixed assets of $4.7 million, and the 2011 balance sheet showed net fixed assets of $5.3 million. The company’s 2011 income statement showed a depreciation expense of $405,000. What was net cap..
Lindenwood Marine, Inc. was awarded a contract by the federal government to build flood control dams along the Missouri River. In April 2010, Lindenwood entered into a contract with Noell Engineering, a Missouri engineering company, to construct spec..
An investor sold seven contracts of June/2012 corn. The price per bushel was $1.64, and each contract was for 5000 bushels. The initial margin deposit is $2000 per contract with the maintenance margin at $1250. How much did the investor have to depos..
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