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Assume a market index represents the common factor and all stocks in the economy have a beta of 1. Firm-specific returns all have a standard deviation of 39%. Suppose an analyst studies 20 stocks and finds that one-half have an alpha of 3.3%, and one-half have an alpha of –3.3%. The analyst then buys $1.1 million of an equally weighted portfolio of the positive-alpha stocks and sells short $1.1 million of an equally weighted portfolio of the negative-alpha stocks.
a. What is the expected return (in dollars), and what is the standard deviation of the analyst’s profit?
b. How does your answer change if the analyst examines 50 stocks instead of 20?
c. How does your answer change if the analyst examines 100 stocks instead of 20?
How does continuous compounding benefit an investor?
You purchase a bond with an invoice price of $1152.32. The bond has a coupon rate of 8.39 percent, and there are 4 months to the next semi annual coupon date. What is the clean price of the bond?
Why does a bankrupt firm under Chapter 11 generally require its bondholders to convert their debt to equity of the company after the reorganization?
You have just taken over as a fund manager at a brokerage firm. Your assistant, Thomas, is briefing you on the current portfolio and states "We have too much of our portfolio in Alpha. Even if the probabilities for different states of economy (expans..
within the discussion board area write 400ndash600 words that respond to the following questions with your thoughts
Ashley is an actuary who is employed by the Nebraska Department of Insurance. Her duties include monitoring the financial position of insurance companies doing business in Nebraska. What is the purpose of requiring insurers to meet risk-based capital..
You have just put your house up for sale. The agent tells you that two offers have been made: (1) 400,000 now and 400,000 in 2 years; and, (2) 287,500 now, 237,500 in 1 year and 275,000 in 2 years. Your agent says that one offer seems “just as good” ..
The original Barbie doll was introduced in 1972 and sold for approximately $3.00. In year 2015, a mint-condition doll in its original box would be listed on EBay at approximately $700.00. What average annual rate of return would the seller realize if..
Greenview Hospital operated at 120% of normal capacity in two of its departments during the year. It operated 120% times 20,000 normal capacity direct labor nursing hours in routine services and it operated 120% times 20,000 normal capacity equipment..
Based on your answer in (c), what would be the amount of the equity up front that you would have to give up in order to obtain LipLife's original venture capital investment?
Find the intrinsic value of a share of stock XYZ using the two-stage dividend discount model. The data for the valuation model has been obtained from the Value Line Research Center. Because the report contains data from the end of 2014, we will use t..
San Mateo Healthcare had an equity balance of $1.38 million at the beginning of the year. At the end of the year, its equity balance was $1.98 million. Assume that San Mateo is a not-for-profit organization. What was its net income for the period? No..
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