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The market portfolio has an expected return of 9 percent with a 10 percent volatility. The risk-free rate is 4 percent. A stock has a 20 percent volatility and a correlation coefficient of minus 0.10 with the market. a. What is the stock’s beta? What does its sign indicate? b. What is the stock’s expected return? Explain why it is lower than the risk-free rate?
Hook Industries' capital structure consists solely of debt and common equity. It can issue debt at rd = 9%, and its common stock currently pays a $3.25 dividend per share (D0 = $3.25). The stock's price is currently $21.75, its dividend is expected t..
Suppose that Euclid's EBIT is normally distributed with an expected value of $250 million and a standard deviation of $200 million. If the debt alternative is chosen, determine the probability that Euclid will have negative EPS.
The cost function of a certain commodity is C(x) = 78 + .16x .0006x 2 + .000003x 3.(a) Find C² (100). (What does this mean?) (b) Find the total cost of producing 101 items.
Bahrah Corporation is interested in buying a 50-unit apartment complex, and renting out the individual apartments at $600 per month. The tenants pay their own heat and utilities. The company estimates the land value as 20% of the total value of the c..
A 15-year annuity pays $2,150 per month, and payments are made at the end of each month. If the interest rate is 9 percent compounded monthly for the first eight years, and 6 percent compounded monthly thereafter, what is the present value of the ann..
A company’s financial manager retains earnings:
The default risk and liquidity premiums for this company's bonds total 0.9 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 5 percent for years 5, 6, and 7, what is the y..
Blake and Valerie Meyer (both age 30) are married with one dependent child (age 5). On the basis of the following information, compute the Meyers' federal income tax (including any AMT) on their joint return.
A person purchased a $233,655 home 10 years ago by paying 15% down payment and signing a 30-year mortgage at 10.8% compound monthly. Interest rates have dropped and the owner wants to refinance the unpaid balance by signing a new 15-year mortgage at ..
TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $2,200,000 and there are 155,000 shares outstanding. If the benchmark price-sales ratio for the company is 4.6, how much will you pay for the stock? If the..
The above borrowing rates represent the borrowing rates the firms can obtain for a five year fixed rate debt issue in U.S. dollars or Swiss francs. Suppose XYZ wishes to borrow Swiss francs and LMN wishes to borrow U.S. dollars. LMN demands a 11 pct ..
Imagine that your goal is to retire 34 years from today with $1,000,000 in savings. Assuming that you currently (i.e., today) have $5,000 in savings, what rate of return must you earn on that savings to hit your goal? (Hint: Solve your future value f..
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