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Suppose that securities are priced according to the CAPM. You have forecast the correlation coefficient between the rate of return on the High Value Mutual Fund (HVMF) and the market portfolio (M) at 0.8. Your forecasts of the standard deviations of the rate of return are 0.25 for HVFF and 0.20 for M.
How would you combine the HVMF and a risk free security to obtain a portfolio with a beta of 1.6? Suppose that rf = 0.10 and E[rm ]= 0.15.
If you were willing to tolerate the same risk as in the above portfolio, how much additional return could you obtain if your portfolio were efficient?
A local engineering firm just bought a new office building (CCA=4%) for $500,000. Useful life of 30 years is expected with no salvage value. If tax rate is 40%, and required rate is 10%, then what is the present value of this building's tax shields?
Fort Smith Drywall expects sales next year to be $600,000 if the economy is strong, $500,000 if the economy is steady, and $300,000 if the economy is weak. The owner believes the probability of a strong economy is 20%, the probability of a steady eco..
Your portfolio has a beta of 1.54. The portfolio consists of 16 percent U.S. Treasury bills, 34 percent stock A, and 50 percent stock B. Stock A has a risk level equivalent to that of the overall market. What is the beta of stock B?
A middle-income worker will retire in January 2017. In the year prior to retirement, her gross monthly earnings are $4,500. Her Social Security pension benefit will be $1,500 per month. Calculate her gross and net-of-tax replacement rates following r..
As a financial analyst, you are tasked with evaluating a capital budgeting project. You were instructed to use the IRR method and you need to determine an appropriate hurdle rate. The risk-free rate is 4% and the expected market rate of return is 11%..
The risk that mortgages will prepay quicker than investors would like is called (???) risk and is associated with (???) market interest rates. The risk that mortgages will prepay slow than investors would like is called (???) risk and is associated w..
Fully amortizing, however, negative amortization allowed if payment cap reached. Based on estimated forward rates, the index to which the ARM is tied is focused as follows: Compute the uncapped and capped payments, loan balances, and yield for an ARM..
Chronic Pain Clinic has estimated the following cash flows associated with a new project. The project cost of capital (discount rate) is 10 percent. Year 0: ($800,000) Year 1: $400,000 Year 2: $400,000 Year 3: $400,000 What is the project’s internal ..
The AZ Company currently has $1,000,000 in physical assets that have always generated a steady stream of earnings for the company. The management of the firm has always paid all of its earnings to shareholders as a dividend. What is the required rate..
locate an article about a controversial subject where the author makesnbspan argument you do not agree with.nbspwrite a
You are a portfolio manager who has just discovered the possibilities of stock-index futures. Assume that you have the resources to buy and hold the stocks in the S&P 500. Any day between February 24 and March 1, obtain the current level of the S&P 5..
A company is considering a 5-year project to open a new product line. A new machine with an installed cost of $80,000 would be required to manufacture their new product, which is estimated to produce sales of $70,000 in new revenues each year. what i..
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