Ariel holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock’s beta, is listed in the following table:
|
Stock |
Investment |
Beta |
Standard Deviation |
|---|---|---|---|
| Andalusian Limited (AL) | $1,750 | 0.90 | 18.00% |
| Tobotics Inc. (TI) | $1,000 | 1.30 | 11.00% |
| Water and Power Co. (WPC) | $750 | 1.10 | 18.00% |
| Flitcom Corp. (FC) | $1,500 | 0.60 | 19.50% |
Suppose all stocks in Ariel’s portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?
Water and Power Co.
Flitcom Corp.
Tobotics Inc.
Andalusian Limited
Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of stand-alone risk?
Flitcom Corp.
Andalusian Limited
Water and Power Co.
Tobotics Inc.
If the risk-free rate is 7% and the market risk premium is 8.5%, what is Ariel’s portfolio’s beta and required return? Fill in the following table:
|
Beta |
Required Return |
|
|---|---|---|
| Ariel’s portfolio |
In: Finance
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 8%.
| 0 | 1 | 2 | 3 | 4 | ||||||
| Project A | -900 | 700 | 360 | 250 | 300 | |||||
| Project B | -900 | 300 | 295 | 400 | 750 | |||||
What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places.
years
What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.
years
What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places.
years
What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.
years
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Coupon, Discount, Sinking, Floating, Call, Municipal, Income, Index, and Junk bonds.
Describe the distinguishing features of eight (8) of these bonds, Explain with examples which bond pays the highest return and which bond pays the lowest return and Why?
In: Finance
Which is the most regressive, based upon the difference in effective rates between the lowest and highest family income quintiles?
In: Finance
What is a junk bond and how does an investor profit from the purchase of a junk bond?
Explain with examples.
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BEEber Inc. currently has 10,000 bonds outstanding. The bonds have a coupon rate of 8%, paid semi-annually, mature in 10 years, and are trading at $985 each. BEEber’s common stock currently sells for $20 per share and there are 750,000 shares outstanding.
The risk-free rate is 4.5%, the expected return on the market is 15%, and BEEber’s beta is equal to 2.0. The corporate tax rate is 40%. What is BEEber’s WAC?
In: Finance
What are the major risks to investors when investing in bonds?
Explain with examples.
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The stock of Business Adventure currently sells for $40 per share. Its dividend payment and its year-end price depend on the state of the economy as follows:
Dividend Stock Price
Boom $2.00 $50
Normal Economy 1.00 43
Recession 0.50 34
Assume the three states of the economy is equally likely to happen.
Expected Return of the stock this year is: 8.75%
Standard Deviation of the stock return for this year is: 17.91%
Risk premium of business adventures stock is 4.75%
Sharpe Ratio is: 0.266
You’d like to form a portfolio, which consists 60% of the Business Adventure’s stock and 40% of the Treasury bill. Calculate the expected return of such a portfolio and the standard deviation of such a portfolio.
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Discuss and elaborate On each benefits of budgeting in regard to banks
*Defining objectives
*Planning
*Organizing
*Controlling
*Co- ordinating
*Communicating
*Motivating
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What is the significance of “risk premium” to investors in selecting their investment portfolios and how does asset diversification affect market risk in an asset portfolio?
Explain each with examples.
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What are the primary sources of market risk and the primary sources of diversifiable risk?
Explain both with examples.
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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 5%. The probability distribution of the risky funds is as follows:
| Expected Return | Standard Deviation | |||||
| Stock fund (S) | 19 | % | 32 | % | ||
| Bond fund (B) | 12 | 15 | ||||
The correlation between the fund returns is 0.11.
You require that your portfolio yield an expected return of 14%, and that it be efficient, on the best feasible CAL.
a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.)
b. What is the proportion invested in the T-bill fund and each of the two risky funds? (Round your answers to 2 decimal places.)
T-bill funds :
Stocks:
Bonds:
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What is the intrinsic price of a company and How is it determined? Explain with examples.
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The Standard Deviation of stock returns for Stock A is 60% and The standard Deviation of market returns is 30% so If the statistical correlation between Stock A and the overall market is 0.6, then the beta for stock A is: 60%/30% x 0.6= 1.2
What is the expected risk premium for investors with this beta value compared to the market average for returns on investment?
In: Finance
|
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,270,000; the new one will cost $1,530,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $270,000 after five years. |
|
The old computer is being depreciated at a rate of $254,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $390,000; in two years, it will probably be worth $117,000. The new machine will save us $287,000 per year in operating costs. The tax rate is 23 percent and the discount rate is 11 percent. |
| a. |
Calculate the EAC for the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| b. |
What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance