Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Mr. Weiss just bought a zero-coupon bond issued by Risky Corp. for $930, with $1000 face value and one year to mature. He believes that the market will be in expansion with probability 0.95 and in recession with probability 0.05. In the event of expansion, Risky Corp. can always repay the debt. In the event of recession, the company would fail to meet its debt obligation. The bondholders would recover nothing and completely lose their investment, should the firm default. A zero-coupon government bond with the same maturity and face value is selling at $970.87. Assume that the government never defaults. The expected value and the standard deviation of the return of the market portfolio are 10% and 40%, respectively. Risky Corps bond return has a correlation of 0.75 with the market portfolio return. Assume that interest is compounded annually.
(1) What is the standard deviation of the return of the Risky Corp. bond? What is the beta of the bond? What would be the equilibrium expected return of the Risky Corp. bond if the CAPM holds? Does Mr. Weiss overvalue or undervalue the bond relative to the CAPM?
(2) Suppose Mr. Weiss changes his mind and sells his Risky Corp. bond. He invests in a portfolio that allocates 60% of the money on the market portfolio, and the other 40% on the government bond. What are the expected value and the standard deviation of his portfolio return? Is his portfolio efficient? Explain.
Please answer both parts with detail.
What is the variance of the dollar price of this asset if the U.S. firm remains unhedged against this exposure?
Explain why the manner in which a project is funded matters to a capital budgeting decision?
An individual retirement account, or IRA, earns tax-deferred interest and allows the owner to invest up to $5000 each year. Joe and Jill both will make IRA deposits for 30 years (from age 35 to 65) into stock mutual funds yielding 9.4%. Joe deposits ..
If you believe that investors require a 20 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Konawalski?
Following are four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast growth 0.30 71 % Slow growth 0.40 17 Recession 0.19 –18 Depression 0.11 –50 Compute the expected return and standard deviation.
Purple Dalia, Inc. has the following balance sheet statement items: current liabilities of $765164; net fixed and other assets of $1253034; total assets of $3024509; and long-term debt of $973292. What is the amount of the firm's total stockholders' ..
The Diversified Growth Co. has three different divisions. Its low-risk division accounts for $5 million of its assets and has a beta of 0.8. Its middle-risk division accounts for $10 million of its assets and has a beta of 1.1, while its high-risk di..
Collections on cash sales Collections on accounts receivables Total sources of cash Uses of cash:
What is cash flows available to equity holders after recapitalization?
What is his net cash flow (surplus or deficit) for the year?
Find the Discount rate, Federal fund rate, and Prime rate for the month of February of each year 1979 1980 1981 1982 1985 1990 1995 2000 2008 2016 in the Federal Reserve Districts of San Francisco Bank.
The Timberlake-Jackson Wardrobe Co. has 10.1 percent coupon bonds on the market with ten years left to maturity.
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd