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"Based on your evaluation of Chipotle, a similar company to El Pollo Loco, you feel strongly that El Pollo Loco stock will rise by 6% over the next 12 months (although you are not sure exactly when this will occur). You want to purchase 1000 shares, but your current cash balance only allows for 700 shares. Your broker charges 7.5% in interest for a margin loan. Your brokerage account is not approved for option trading. What is your best strategy for purchasing 1000 shares? (Just describe a transaction- don’t attempt the math)"
The answer the professor put to this question was "Buy El Pollo Loco shares, short Chipotle"...could someone please explain how they got to that conclusion, I thought since they were not approved for options trading they could not short a stocks?
TeleStark is considering building a new manufacturing plant. This plant will cost $9 million to build. The new plant will produce cash inflows of $2.05 million per year for the next 7 years. TeleStark already owns the land on which it intends to buil..
Coheed, Inc., had equity of $160,000 at the beginning of the year. At the end of the year, the company had total assets of $224,000. During the year the company sold no new equity. Net income for the year was $72,000 and dividends were $46,080. The s..
The internal rate of return
Respond to the following client statement: a prospective client comes into your office looking for investment advice. The client feels that s/he is appropriately diversified because the portfolio currently holds six different growth mutual funds, hen..
Gilmore, Inc., just paid a dividend of $2.65 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Assume investors require a return of 10 percent on this stock. What is the current price? ..
As an employee, would you prefer to participate in a defined-benefit plan or a defined-contribution pension plan? Explain your answer, being explicit in considering the advantages and disadvantages of each plan, and which are most important to you.
Hank purchased a $28,000 car two years ago using a 8 percent, 4-year loan. He has decided that he would sell the car now, if he could get a price that would pay off the balance of his loan. What’s the minimum price Hank would need to receive for his ..
Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 6.7%. What is the duration if the yield to maturity is 10.7%?
Consider two assets with expected return E(r1)=0.3, E(r2)=0.56; with variances σ12=0.1, σ22=0.25 and covariance σ12=0.15 . The risk free rate is 0.14. Find the normalized weight w1 and w2 of the efficient portfolio (the tangency portfolio) of risky a..
You will receive annual payments of $2,400 at the end of each year for 15 years. The first payment will be received in year 6. What is the present value of these payments if the discount rate is 7 percent?
A leveraged buyout involves individuals assuming large personal debt loads in order to purchase the company from a previous owner. Preferred stock is considered a hybrid because the value can increase, like common stock, but it also offers interest p..
Last year a company issued 12-year 10% semiannual coupon bond at its par value of $1000. What is the bond’s yield to maturity today if the bond sells for $1050 now?
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