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The following data have been developed for the Donovan Company, the manufacturer of an advanced line of adhesives:
Sate Probability Market Return Return for the firm
1 .1 -.15 -.30
2 .3 .05 .00
3 .4 .15 .20
4 .2 .20 .50
The risk free rate I 6%. Calculate the following:
a) The expected market return.
b) The variance of the market return.
c) The expected return for the Donovan Company.
d) The covariance of the return for the Donovan Company with the market return.
e) Write the equation of the security market line.
f) What is the required return for the Donovan Company? How does this compare with its expected return?
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CAPM validity as well as possible situations which of the following situations is possible
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You don't expect any further shifts after that, however. Also assume that at any point in time (e.g., t = 1) there will always be a one-year zero-coupon bond for sale at the prevailing rate at that time.
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Management has told the manager of division A that projects in his division will be assigned a discount rate that is 2 percent less than the firm's weighted average cost of capital. What is the discount rate applicable to division A?
The covariance of the returns between Willow Stock and Sky Diamond Stock is 0.0840. The variance of Willow is 0.1300, and the variance of Sky Diamond is 0.1190. What is the correlation coefficient between the returns of the two stocks?
The debt-equity ratio is .0.65 and the tax rate is 35 percent. What is the net present value of the project?
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