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Given the following information, Rf = .06, E(RM) = .12, σM = .15,where E(RM) is expected market return and σM is volatility of market return, answer the following questions.
(a) What is the equilibrium expected return on a risky asset with a β of 1.2? With a β of .6?
(b) What is the β of a security with equilibrium expected return of .03?
(c) Is it possible in equilibrium for the expected return on a risky security to be less than the risk-free rate? Explain. (Hint: look at part (b))
1. you have invested 500 shares in maxwells company limited. for the next three years you will receive dividends of
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Lakonishok Equipment has an investment opportunity in Europe. The project costs €12 million and is expected to produce cash flows of €1.8 million in Year 1, €2.6 million in Year 2, and €3.5 million in Year 3. The current spot exchange rate is $1.36/€..
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Market Values and Book Values Klingon Widgets, Inc. purchased new cloaking machinery 3 years ago for $6 million. The machinery can be sold to the Romulans today for $4.8 million. What is the book value of Klingon’s total assets today? What is the sum..
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