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The following questions relate to modern portfolio theory:
1. Assume the rates of return for shares A and B have a perfect, negative correlation (i.e. coefficient -1). If their respective expected rates of return are 10% and 12% for the relevant investment period, and standard deviation of rates of return estimated to be 15% and 25% respectively, calculate what proportions of your money should be invested into assets A and B (i.e. calculate the asset weightings) to achieve a portfolio that has an expected zero risk.
2. Your research has indicated a particular portfolio of shares has weekly returns that are normally distributed, with a mean rate of return of 0.25% (i.e. 0.25 of one percent) and standard deviation of 0.50%. What is the dollar value of the possible loss that we are 99% confident will not be exceeded over a given week, assuming the portfolio investment amount is $100,000.
Consider the following capital market: a risk-free asset yielding 0.75% per year and a mutual fund consisting of 70% stocks and 30% bonds. The expected return on stocks is 10.75% per year and the expected return on bonds is 3.25% per year.
Which of the following hedges should qualify for the short-cut method?
Blue Water Boats is considering a new project with perpetual cash inflows of $435,000, cash costs of $310,000, and a tax rate of 35 percent. The firm plans to issue $250,000 of debt at an interest rate of 7.3 percent to help finance the initial proje..
Explains what happens to a firm’s break-even point if it is able to lower its fixed operating costs but keeps its variable operating costs per unit constant.
Ac corporation has beginning inventory of $9,049, accounts payable of $7,212, and accounts receivable of $6,333. The end of year values are $7,850 for inventory, $8,515 for accounts payable, and $7,029 for accounts receivable. Net sales are $91,200 a..
Your firm is considering an investment that will cost $920,000 today. The investment will produce cash flows of $450,000 in year 1, $270,000 in years 2 through 4 , and $200,000 in year 5. the discount rate that your firm uses for projects of this typ..
TDJ Corp. needs $6.4 million in capital for its new state-of-the-art manufacturing facility.
Mortgage interest on your personal residence is tax deductible but rental payments are not. Is this fair to renters? Should rental payments be tax deductible? Or should mortgage interest be non-deductible?
A discount factor:
Winny's Office Furniture has a contribution margin ratio of 16%. If fixed costs are $177,800, how many dollars of revenue must the company generate in order to reach the break-even point?
What is the actual margin of the stock when it's at $56? Below what price will a margin call occur?
What is the accumulated sum of the following stream of payments? $2,004 every year at the beginning of the year for 13 years, at 4.59%. compounded annually,
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