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Given the following probability distributions for risky assets X and Y:
a) If the only available choice is 100% of your wealth in X or 100% in Y and you choose on the basis of mean and variance, which asset is preferred?
b) According to the second-order stochastic dominance criterion, how would you compare them?
Show by hand: You purchase a new house for $150,000 with a 10% down payment. The bank offers you two loan options – both of them for 30 years. Option 1 is an annual interest rate of 6% compounded monthly. What is the approximate difference between t..
Test Sales, Inc. (TSI) just paid a common stock dividend of $2.50 per share. Its sales are expected to grow at a rate of 20% for the years 1 to 3, at 16% for years 4 and 5, and at 6% per year indefinitely thereafter. Dividend growth is expected to ma..
Delamont Transport Company (DTC) is evaluating the merits of leasing versus purchasing a truck with a 4-year life that costs $50,000 and falls into the MACRS 3-year class. If the firm borrows and buys the truck, the loan rate would be 9%, and the loa..
The firm's weighted average cost of capital, denoted rwacc, is the cost of capital that reflects the risk of the overall business, which is the combined risk of the firm's equity and debt. When using the discounted free cash flow model we should use ..
Several years ago, the hospital needed additional space and issued bonds to finance the purchase of a new building. Each bond has a face value of $15,000, a 3.8% coupon rate, and a maturity of 20 years. Interest is paid semiannually. The current mark..
Burton, a manufacturer of snowboards, is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given. The proposed machine will cost $120,000 and have installation costs of$15,000. lt wil..
Dean Brothers Inc. recently reported net income of $1,500,000. The company has 300,000 shares of common stock, which currently trade at $60 a share. Assuming the company's price/earnings ratio remains at its current level, what will be the company's ..
What is the required return for a stock that has a 5.7% constant-growth rate, a price of $21.25, an expected dividend of $1.70, and a P/E ratio of 10?
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. Calculate the NPV of this investment and determine if the project should be rejected..
An efficient market is one in which no one ever profits from having better information than the rest. Discuss this statement and whether or not you find this to be true, false or are you uncertain. Why?
Using the above cash flows, calculate the following for each project. Assume a 11% required return a. NPV b. Payback Period c. Discounted Payback Period d. IRR e. MIRR. Assuming independent projects, provide an accept/reject decision for each capital..
Suppose your company needs to raise $52 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 7 percent, and you’re evaluating two issue alternatives: A semiannual coupon bond with a coupo..
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