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Currently Lotta £ 68,000 to invest. She faces the following choice: she can buy shares of AstraZeneca and Ericsson. If she invests in AstraZeneca she will lose £ 20,000 with probability 0.4, but with probability 0.4, she will win £ 35,000, while the probability is 0.2 that the value of shares remains unchanged. If she invests in Ericsson, she will lose only £ 10,000 with probability 0.5, but with probability 0.5 she will receive only £ 30,000. a. Can you tell which investment she prefers to do if she is a risk-averse person? Now suppose instead that she can split their investment and may invest 50% of her 68000 in AstraZeneca and the rest of Ericsson. The assumptions are otherwise unchanged. Which of the three investments will she choose if she is a risk-averse person? b. Can you tell which investment she prefers to do if she is a risk-neutral person? Now suppose instead that she can split their investment and may invest 50% of her 68000 in AstraZeneca and the rest of Ericsson. The assumptions are otherwise unchanged. Which of the three investments will she choose if she is a risk-neutral person?
Which of the following statements regarding a firm's optimal capital structure is true? Review the list and identify which items are correct
What does the study of the info provided show about the way in which each company has grown over the 11 years shown on the statements (e.g., 2003-2013)? What does the it show about the way in which each company has grown over the 11 years shown on th..
Essary Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $970. At this price, the bonds yield 7 percent. What must the coupon rate be on the bonds? (answer as a percent r..
Nations Bank offers to lend you $50,000 at a nominal rate of 5.0%, simple interest, with interest paid quarterly. Bank of US offers to lend you the $50,000, but it will charge 5.5%, simple interest, with interest paid at the end of the year. What's t..
A newly issued 10-year maturity, 6% coupon bond making annual coupon payments is sold to the public at a price of $820. The bond will not be sold at the end of the year. The bond is treated as an original-issue discount bond. Calculate the constant y..
Consider the following project of Hand Clapper, Inc. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $15.6 million that will be depreciated straight-line t..
What is the present value of the Coca-Cola futures contract? If the contract settles at 105-8, are current market interest rates higher or lower than the standardized rate on a futures contract? Explain. What is the implied annual interest rate on th..
You are asked to evaluate two machines. The benefits from ownership are identical. Machine A costs $300 to buy and install, lasts for 5 years, and costs $160 per yea to operate. Machine B costs $500, lasts for 7 years, and costs $120 per year to oper..
Gardial green light, a manufacturer of energy-efficient lighting solutions, has had such success with it new products that it is planning to substantially expand its manufacturing capacity with a 15 million investment in new machinery. how much exter..
Stock X has an expected return of 8% and Stock Z has an expected return of 12%. The standard deviation of the expected return is 10% for both stocks. Assume that these are the only two stocks available in a hypothetical world. What is the expected re..
Assume that the price of Microsoft stock is currently $25 a share. Also suppose that the excercise price for the Microsoft stock options is $25 a share for both put and call; the call price is $3 a share and put price is also $3 a share. What is your..
You received a premium on the put option of $.03 per unit. The exercise price was $1.38. Assume that one year ago, the spot rate of the British pound was $1.34, the one-year forward rate exhibited a discount of 2%, and the one-year futures price was ..
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