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A highly risk-averse investor is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolio. The three stocks currently held all have b = 1.0, and they are perfectly positively correlated with the market. Potential new Stocks A and B both have expected returns of 15%, are in equilibrium, and are equally correlated with the market, with r = 0.75. However, Stock A's standard deviation of returns is 12% versus 8% for Stock B. Which stock should this investor add to his or her portfolio, or does the choice not matter?
a. Either A or B, i.e., the investor should be indifferent between the two.b. Stock A.c. Stock B.d. Neither A nor B, as neither has a return sufficient to compensate for risk.e. Add A, since its beta must be lower
A stock has a beta of 1.17, the expected return on the market is 11.1 percent, and the risk-free rate is 4.9 percent.
Which is not a typical benefit of credit derivatives? (a) They make it easier to price other securities that have credit risk. (b) They may be designed for the diversification of credit risk away from other risks
At the end of March, 40,000 additional units were in process in the production department and were 100% complete with respect to materials and 40% complete with respect to labor. Compute the number of units transferred to finished goods.
Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000.
Bartman Corporation observes that the Swiss franc (SF) is being quoted at $0.6164/SF, while the Swedish krona (SK) is quoted at $0.1981/SK. What is the SK/SF cross rate?
Describe Siosan's utility function. Contrast her utility function with that assumed in traditional finance theory.
After analyzing a sample of remaining 480 items, you determine that sample is overpriced by 6%. By using this 6% decrement factor, what cost must you evaluate for those items?
Some companies debt-equity targets are expressed not as a debt ratio, but as a target debt rating on a firm outstanding bonds. What are the pros and cons of setting a target rating, rather than a target ratio?
A large Bank Holding Corporation has Tier-1 capital of $40 billion and Tier two capital of $20 billion and risk weighted assets of $550 billion.
Mulligan Company, which is subject to a 30 percent income tax rate, is considering a $150,000 asset that will result in the following over its seven-year life:
If the inflation rate was 2.6 percent over the past year, what was your total real return on investment?
Assume that this does not affect the cost of equity. Cheshire's tax rate is 40%. What is Cheshire's cost of capital without and with the stock repurchase?
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