Based on the following information, determine the Return on Equity. Provide your answer in decimal form with three significant digits.

Brandon is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that consists of four stocks. The investment allocation in the portfolio along with the contribution of risk from each stock is given in the following table:

Brandon calculated the portfolio’s beta as 0.818 and the portfolio’s expected return as 8.4990%.

Brandon thinks it will be a good idea to reallocate the funds in his client’s portfolio. He recommends replacing Atteric Inc.’s shares with the same amount in additional shares of Baque Co. The risk-free rate is 4%, and the market risk premium is 5.50%.

According to Brandon’s recommendation, assuming that the market is in equilibrium, how much will the portfolio’s required return change? (Note: Do not round your intermediate calculations.)

0.6778 percentage points

1.0776 percentage points

0.9994 percentage points

0.8690 percentage points

Analysts’ estimates on expected returns from equity investments are based on several factors. These estimations also often include subjective and judgmental factors, because different analysts interpret data in different ways.

Suppose, based on the earnings consensus of stock analysts, Brandon expects a return of 6.13% from the portfolio with the new weights. Does he think that the required return as compared to expected returns is undervalued, overvalued, or fairly valued?

Undervalued

Overvalued

Fairly valued

Suppose instead of replacing Atteric Inc.’s stock with Baque Co.’s stock, Brandon considers replacing Atteric Inc.’s stock with the equal dollar allocation to shares of Company X’s stock that has a higher beta than Atteric Inc. If everything else remains constant, the portfolio’s beta would _____Increase/decrease.

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Australian corporate bonds can now be issued with the same prospectus as for previous issues, simplifying the process.

As a result, the corporate bonds' yield __________ while the stock of bonds in the financial system ___________.

A.

increases; decreases

B.

increases; increases

C.

decreases; increases

D.

decreases; decreases

Superserv Inc. intends to acquire new equipment for $10 million and has an estimated life of 5 years and a salvage value of $800K.  The new equipment is expected to allow additional annual sales of $5 million over the next 5 years.  The associated additional annual operating costs are expected to be $3 million, while the interest on debt issued to finance the project is $1.5 million.   In addition, working capital will increase by $1.2 million at the outset. The project's cost of capital is 10%.  The firm's tax rate is 40%.  The annual depreciation charge on the new machine is $2 million.  What is the project's NPV? ($-2.5753m)

Solve this without excel, please.

Jason purchased 8% quarterly bonds that have a par value of $20,000 and a maturity date
8 years from now. What is the price that Jason can sell the bonds four years from now if
he wants to get a 12% rate compounded quarterly on his investment?

You are a portfolio manager of a risky portfolio with an expected rate of return of 14% and a standard deviation of 28%. The T-bill rate is 4%. Suppose your client decides to invest in your risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected return of 10%.

a. What is the proportion y ?
b. What will be the standard deviation of your client’s portfolio ?
c. What is the Sharpe ratio ?
d. Suppose your client is wondering if he should switch his money in your fund to a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 9% with a standard deviation of 25%. Show your client the maximum fee you could charge (as a percent of the investment in your fund deducted at the end of the year) that would still leave him at least as well off investing in your fund as in the passive one. (Hint: The fee will lower the slope of your client’s CAL by reducing the expected return net of the fee.) ?

Consider the following mutually exclusive projects:

Whichever project you choose, if any, you require 6 percent return on your investment.

What is the payback period for Project A?

What is the payback period for Project B?

What is the discounted payback period for project A?

What is the discounted payback period for project B?

What is the NPV for project A?

What is the NPV for project B?

What is the IRR for Project A?

What is the IRR for Project B?

What is the profitability index for Project A?

What is the profitability index for Project B?

The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 12% per year for the next 6 years and then decreasing the growth rate to 6% per year forever after. The company just paid its annual dividend in the amount of $1.46 per share. What is the current value of one share if the required rate of return is 8%?  ENTER YOUR ANSWER WITH TWO DECIMAL PLACEs (e.g., 12.25). ROUND TO THE NEAREST CENT. DO NOT USE THE DOLLAR SIGN ($) IN YOUR ANSWER.

**only work out using step by step not excel or any other program!! **

Last year Janet purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 30-year maturity. At the time of the purchase, it had an expected yield to maturity of 13.84%. If Janet sold the bond today for $925.66, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

When she becomes 25, Maggie invests $1,000 on the first day of each year for a period of ten years for a total investment of $10,000. She then stops and makes no further investments. Assume a 6% interest rate.

When he becomes 40, Ben invests $1.000 on the first day of each year for a period of 25 years for a total investment of $25,000. Assume a 6% interest rate. How much will Maggie and Ben have each when they reach age 65?

1) Assume that you are a speculator. What would you choose in terms of instruments: options or futures/ forwards? Explain your answer. Also if you believe that there is a trade-off between the two, clearly explain the cases when you would use one over the other?

a. ) Answer question 1 from the perspective of a US MNC

Exercise #4: A firm can lease a truck for 5 years at a cost of $45,000 annually. It can instead buy a truck at a cost of $95,000, with annual maintenance expenses of $25,000. The truck will be sold at the end of 5 years for $35,000. The cost of capital is 15%. Which is a better option? A. EAC of Lease = [11] B. PV of all Costs of Purchase = [12] C. EAC of Purchase = [13] D. Better Option is to …………[14]………………………….

Dewey Corp. is expected to have an EBIT of $2.45 million next year. Depreciation, the increase in net working capital, and capital spending are expected to be $180,000, $85,000, and $185,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $13 million in debt and 800,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company’s WACC is 9.1 percent and the tax rate is 21 percent. What is the price per share of the company’s stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Blossom, Inc., has four-year bonds outstanding that pay a coupon rate of 8.00 percent and make coupon payments semiannually. If these bonds are currently selling at $911.89.

What is the yield to maturity that an investor can expect to earn on these bonds? (Round answer to 1 decimal place, e.g. 15.2%.)

Yield to maturity %

What is the effective annual yield? (Round answer to 1 decimal place, e.g. 15.2%.)

Effective annual yield %