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1. Your client is concerned when you recommend two “risky” investments for his portfolio. “Look at the size of those standard deviations!”, he says. “One of those is risky enough, if I own them both, I’m taking on even more risk.” Explain why this may not be not the case. Under what circumstance would he be correct? Be sure to address the issue of covariance/correlation.
2. After your eloquent explanation, your client figured he’d read up on MPT. After learning about the Sharpe CAPM, he tells you he wants a high beta portfolio because that will get him more return. He says that Sharpe’s CAPM implies that more risk = more return. Is he right or wrong? Explain.
3. Discuss the advantages/disadvantages of relative valuation methods (Statistical metrics like price to book, sales and earnings) vs. using discounted intrinsic valuation methods like the dividend discount model or discounted cashflow model.
Broussard Skateboard's sales are expected to increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $4 million at the end of 2013. Broussard is already at full capacity, so its assets must grow at the same rate as project..
Perdisco can then give you feedback that will help you identify and fix your mistakes as early as possible to prevent those mistakes being carried forward throughout the rest of your practice set.
A 5-year bond with a 4.45% coupon sells for $107.48. A 7-year bond with a 5.75% coupon sells for 116.564. The conversion factor for the 5-year bond is 0.933891 while the 7-year bond is 0.98588. Assume that the yields for both bonds are 6% and that co..
The MoMi Corporation’s income before interest, depreciation and taxes, was $1.6 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 16% of pre..
What is the present value of a perpetuity that pays you annual, end-of-year payments of $950.00? Use a nominal rate (monthly compounding) of 7.50%.
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a $3 per share dividend in 14 years, and you expect dividends to grow perpetually at 4 percent per year thereafter. If the discount rate is 12 percent,..
Chocolate and more offers a bond with a coupon rate of 6 percent, semi-annual payments, and a yield to maturity of 7.73 percent. the bonds mature in 9 years. What is the market price of a 1,000 face value bond?
A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is INCORRECT?
Marcel Co. is growing quickly. Dividends are expected to grow at a 19 percent rate for the next 3 years, with the growth rate falling off to a constant 4 percent thereafter. Required: If the required return is 8 percent and the company just paid a $1..
Obtain the annual report of a well-known company.- You are the owner of a company that is about to "go public"-that is, issue its stock to outside investors.
Currency per U.S. $ Australia dollar 1.2387 6-months forward 1.2346 Japan Yen 100.4300 6-months forward 99.9500 U.K. Pound .6795 6-months forward .6778 Suppose interest rate parity holds, and the current risk-free rate in the United States is 4 perce..
Which of the following is NOT an explanation for why an increased investment in a project affect net working capital instead of accounting profits. A small boutique chooses to stock sizeable artwork and sculpture, which consumes a lot of floor and wa..
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