Question
In: Finance
You are attempting to predict the return on Dog Heavy Equipment. You have gathered the following...
You are attempting to predict the return on Dog Heavy Equipment. You have gathered the following data on the firm’s returns, relevant Treasury rates (for a risk-free rate), and the S&P 1500 (which you plan to use as a market portfolio):
| Year | Dog | Treasury | S & P 500 |
| 1 | 12% | 2% | 14% |
| 2 | 7% | 2% | 8% |
| 3 | 14% | 1% | 9% |
| 4 | 8% | 1% | 12% |
| 5 | 4% | 1% | 7% |
| 6 | 12% | 0% | 9% |
| 7 | 9% | 0% | 10% |
| 8 | 1% | 1% | 12% |
| 9 | -10% | 1% | 15% |
| 10 | 25% | 2% | 11% |
(i) Assume you believe that CAPM is the correct pricing model. Estimate the abnor- mal return on this stock and its beta. Should you invest in this security?
(ii) Do Dog’s returns provide evidence for or against a weak form efficient market?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You are evaluating the performance of two portfolio managers, and you have gathered annual return data...
You are evaluating the performance of two portfolio managers,
and you have gathered annual return data for the past decade:
Year
Manager X
Return (%)
Manager Y
Return (%)
1
-1.0
-5.0
2
-1.0
-4.0
3
-1.0
-3.5
4
-0.5
1.5
5
0.0
3.0
6
2.5
3.5
7
3.5
7.5
8
9.0
8.5
9
11.0
10.5
10
15.0
15.5
For each manager, calculate (1) the average annual return, (2)
the standard deviation of returns, and (3) the semi-deviation of
returns....
You are evaluating the performance of two portfolio managers, and you have gathered annual return data...
You are evaluating the performance of two portfolio managers,
and you have gathered annual return data for the past decade:
Year
Manager X Return (%)
Manager Y Return (%)
1
-2.5
-4.0
2
-2.5
-3.0
3
-2.5
-2.5
4
-0.5
3.5
5
0.0
5.5
6
2.0
6.5
7
6.5
7.5
8
10.0
8.5
9
13.5
9.5
10
19.5
12.0
For each manager, calculate (1) the average annual return, (2)
the standard deviation of returns, and (3) the semi-deviation of
returns....
As an analyst, you have gathered the following information on a company you are tracking. The...
As an analyst, you have gathered the
following information on a company you are tracking. The current
dividend is $0.75. Dividends are expected to grow at a rate of 12%
over the next three years, decline linearly to 4% over the next six
years, and then remain at a long-term equilibrium growth rate of 4%
in perpetuity. The required return is 9%. The value of the company
is closest to:
a) $20.25.
b) $23.2056
c) $78.25
d) $15.76
e)...
You have a purchase order to acquire €1 million of heavy equipment from a French company...
You have a purchase order to acquire €1 million of heavy
equipment from a French company to be paid in full at time of
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Mendelian genetics predict that in Labrador retrievers (a type of dog), 25% should have brown coat...
Mendelian genetics predict that in Labrador retrievers (a type
of dog), 25% should have brown coat color if both parents are
heterozygous (the rest are black). You mate two parents and get a
litter of 8 puppies. Calculate the following:
a) The probability of 6 black puppies.
b) The probability of 3 brown puppies.
c) The probability that 50% of the puppies will be brown.
(Comment: You do not need to know anything about genetics to
solve this problem. If...
You are the accountant for ADO Corporation, and you have to prepare the journal for income taxes. You have gathered the following information for 2020:
You are the accountant for ADO Corporation, and you have to
prepare the journal for income taxes. You have gathered the
following information for 2020:Pretax financial income (i.e., pretax GAAP income) is
$520,000.The tax rate for 2020 is 40%.Depreciation expense on the tax return is $13,000 greater than
on the GAAP income statement.One of the corporation’s executives died in a plane crash. ADO
received life insurance benefits of $40,000.Rent revenue on the tax return (i.e., rent collected) is
$35,000 higher...
LTD Inc is considering a takeover of XYZ Inc. You have gathered the following information regarding...
LTD Inc is considering a takeover of XYZ Inc. You have gathered
the following information regarding the two companies.
LTD Inc
XYZ Inc
Price per share
40
15
Shares outstanding
1,000,000
500,000
Earnings
2,000,000
300,000
1. LTD Inc is planning on taking over XYZ Inc by doing a share
exchange. LTD Inc will exchange one of its shares for every 2
shares of XYZ Inc. The synergies are $2,000,000 in total (NOT
annually). What will be the price per share...
Your dog, Peyton, has severe allergies and cannot have the usual store-bought dog treats. You have...
Your dog, Peyton, has severe allergies and cannot have the usual
store-bought dog treats. You have been making homemade treats for
him that are allnatural and hypoallergenic. Over the past year, you
have been making and selling these treats out of your home, and you
have been quite successful. You now have an opportunity to open
your own dog treat bakery. You have decided on a corporate form of
business and have named your company “Peyton Approved.” To complete
Milestone...
Use the following data to predict the wage you would have to pay to hire a...
Use the following data to predict the wage you would have to pay
to hire a particular individual.
a. Specify a regression equation
b. Estimate a regression equation to explain wages
c. Explain the t-stats, f-stats, and the R Squared. What
information do they give ?
d. You have a nonwhite female with 20 years in the industry and
an MBA. How much will you have to pay to hire her? What if she was
a white male?
e. Does...
Your investment banking client Uber is about to go public. You have gathered the following information...
Your investment banking client Uber is about to go public. You
have gathered the following information concerning comparable
companies whose stock is publicly traded:
IPO Pricing
Company
Price/Earnings Per Share
Price/Cash Flow Per Share
Price/Revenue Per Share
Price/Book
A
30
15
3.0
2.4
B
20
11
2.6
2.0
C
25
13
2.8
1.8
D
35
17
3.1
1.7
E
27
14
3.0
2.1
Calculate the average values for each multiple.
Using these average multiples estimate the implied price for
Uber’s...
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