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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?
An investment opportunity promises a stated interest rate of 6 percent with semi-annual compounding. Which of the following statements is most correct?
Define, give an example, and explain the appropriate treatment in decision making
Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it would give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires 1, 700,00 of equipment. What w..
NPV Calculate the net present value (NPV) for the following 15-year projects. Comment on the acceptability of each. Assume that the firm has a cost of capital of 9%.
Bourdon Software has 12 percent coupon bonds on the market with 16 years to maturity. The bonds make semi annual payments and currently sell for 108.8 percent of par. What is the current yield on the bonds? What is the YTM? What is the effective annu..
Which of the following are inventory accounts for a manufacturer?
If an organization's non operating and operating activities are profitable in a given year, which of the following statements is most correct?
Annuity A makes annual year-end payments of $976.50 for each of the next 10 years, while investment B makes annual year-end payments of $600 per year forever. At what interest rate would you be indifferent between the two investments? At interest rat..
Based on their incentives and interests, different stakeholders tend to classify preferred stock differently in terms of risk. From the viewpoint of the issuing corporation, preferred stock is ___________risky than bonds. Preferred stock offers the i..
You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage loan for 80 percent of the $3,400,000 purchase price. The monthly payment on this loan will be $17,500. What is the APR and EAR on this loan?
hedging currency risks at aifs harvard business school case 9-205-026 2007.instructions this case should be done
They present you with three contracts, giving you a choice of the three: You decide to calculate the present value of each contract at effective rates 4%, 5% and 6%, and to then decide. Make those calculations. What do you conclude?
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