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Suppose that the daily log return of a security follows the model
where {at} is a Gaussian white noise series with mean zero and variance 0.02.
What are the mean and variance of the return series rt?
Compute the lag-1 and lag-2 autocorrelations of rt. Assume that r100 = -0.01, and r99 = 0.02.
Compute the 1-step and 2-step ahead forecasts of the return series at the forecast origin t = 100.
What are the associated standard deviations of the forecast errors?
The correlation coefficient between stock B and the market portfolio is 0.8. The standard deviation of stock B is 35% and that of the market is 20%. Calculate the beta of the stock.
We are evaluating a project that costs $924,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 75,000 units per year. Price per unit is $46, va..
question 1 prepare a short essay for each of the subsequent questions. where possible illustrate with an appropriate
You want to have $0.7 million in real dollars in an account when you retire in 30 years. The nominal return on your investment is 9 percent and the inflation rate is 5 percent. What is the real amount you must deposit end of each year to achieve your..
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You are considering the following two mutually exclusive projects. The required rate of return is 14.5% for project A and 13.7% for project B. Which project should you accept and why?
Dave and Marlene Carter live in the Boston area, where Dave has a successful orthodontics practice. Dave and Marlene have built up a sizable investment portfolio and have always had a major potion of their investments in fixed-income securities. Comp..
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $815,822, $863,275, $937,250, $1,020,110, $1,212,960, and $1,225,000 over the next six years. If the appropriate disco..
You expect Budweiser will pay dividends of 2.25 in one year, 2.50 in two years, and 2.75 in three years. From that point onwards, dividends will grow at 6% per year. Investors' required rate of return is 12%. According to the Dividend Discount Model,..
The Omnibus Reconciliation Act of 1981 changed the intergovernmental assistance system by:
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