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Your portfolio has a beta of 1.23. The portfolio consists of 18 percent U.S. Treasury bills, 28 percent in stock A, and 54 percent in stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of stock B?
For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9% should the firm accept this project? What if the required return was 21%.
"Everything else held constant, the market price of a discount bond will increase and approach the bond's par value as the maturity date approaches." "Bond prices and interest rates move in the same direction, i.e., if interest rates rise, so will bo..
Explain why managers might want to hedge less if they are compensation by stock options (holding everything else the same).
Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 700 shares at $61 per share with an initial margin of 30 percent. One year later, the stock is selling for $66 per share, and you close out your positi..
High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. How much debt is ..
On January 1, Bestway, Inc. signed a $175,000, *%, 30-year mortgage that requires semiannual payments of $7,735 on June 30 and December 31 of each year. What is the journal entry to record the second semi annual payment (round interest calculation to..
On the same graph, sketch two Treasury yield curves, one showing the situation on that day and one showing the situation on the day before.
Weisbach Electronics is considering investing in India. Which of the following factors would make the company less likely to proceed with the investment?
The PARC Company, a large profitable corporation, has decided to purchase a new widget machine. The following cost data concerning the widget machine have been provided. First cost = $3,156,000. Salvage value = $119,000. Life = 10 Years. Direct purch..
Stock R has a beta of 2.4, Stock S has a beta of 0.65, the expected rate of return on an average stock is 13%, and the risk-free rate is 6%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exc..
The weighted marginal cost of funds is used in pricing decisions. Explain how it should be used if the loan being priced exhibits average risk. How should the weighted marginal cost of funds be used if the loan carries above average risk?
Mr. Rich has offered to give the New Long-Term Care Facility $100,000 today or $300,000 when he dies. If the Long-Term Care Facility earns 14% on its investments and it expects Mr. Rich to live for 12 years, which alternative should it take?
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