Stock X has a 9.0% expected return, a beta coefficient of 0.7, and a 30% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, and a 20% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

1. Calculate each stock's coefficient of variation. Do not round intermediate calculations. Round your answers to two decimal places.

   CV_x =

   CV_y =

2. Which stock is riskier for a diversified investor?
   1. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X.
   2. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is riskier. Stock Y has the higher beta so it is riskier than Stock X.
   3. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected returns is riskier. Stock X has the higher standard deviation so it is riskier than Stock Y.
   4. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is riskier. Stock X has the lower beta so it is riskier than Stock Y.
   5. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is riskier. Stock Y has the lower standard deviation so it is riskier than Stock X.

   -Select-IIIIIIIVVItem 3

3. Calculate each stock's required rate of return. Round your answers to one decimal place.

   r_x =   %

   r_y =   %

4. On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

   -Select-Stock XStock YItem 6

5. Calculate the required return of a portfolio that has $6,000 invested in Stock X and $2,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

   r_p =   %

6. If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?

   -Select-Stock XStock YItem 8

Suppose Income Elasticity of Demand is -0.7 for french fries and Cross-Price Elasticity of Demand for french fries and pizza is 1.8. Then the following happen: Income increase and the price of pizza goes down. Using a Supply and Demand Model, what happens to the equilibrium price and equilibrium quantity of french fries? Victor Laszlo demands two exit visas. He is willing to pay any price to get them. Draw his demand curve.

You short an equity portfolio worth $50 million with a market beta of 0.7. The market index is currently at 1000.

b. Suppose you buy 150 futures contracts to buy the market index one year from now. The contract multiplier is 250. What is the delta of the futures?

c. What is the dollar change in the value of your equity portfolio if the market index increases by 50 points (5%)?

d. What is the dollar change in the payoff of your futures position if the market index increases by 50 points (5%)?

Answer to C: If the market index increases by 50 points or 5% , then the portfolio should increase in value by (5 x 0.7) =3.5 % Therefore, increase in $ value of portfolio = 50 x (1.035) = $ 1750000.
Answer to D: Cash Ouflow when Futures are bought = 150 x 250 x 1000 = $ 37500000. Cash Inflow when Futures are sold after 50 point increase = 150 x 250 x 1050 = $ 39375000. Change in Payoff = 39375000 - 37500000 = $ 1875000

e. Based on your answers in parts c and d, do you conclude that you have a favorable deal, or are you facing any risk?

f. If you want to hedge away your risk completely, what changes in your futures position should you make?

Stock Y has a beta of 0.7 and an expected return of 8.29 percent. Stock Z has a beta of 1.8 and an expected return of 12.03 percent. What would the risk-free rate (in percent) have to be for the two stocks to be correctly priced relative to each other? Answer to two decimals.

Stock X has a 9.0% expected return, a beta coefficient of 0.7, and a 40% standard deviation of expected returns. Stock Y has a 13.0% expected return, a beta coefficient of 1.3, and a 20% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

1. Calculate each stock's coefficient of variation. Do not round intermediate calculations. Round your answers to two decimal places.

   CV_x =

   CV_y =

2. Which stock is riskier for a diversified investor?
   1. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is riskier. Stock X has the lower beta so it is riskier than Stock Y.
   2. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is riskier. Stock Y has the lower standard deviation so it is riskier than Stock X.
   3. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X.
   4. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is riskier. Stock Y has the higher beta so it is riskier than Stock X.
   5. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected returns is riskier. Stock X has the higher standard deviation so it is riskier than Stock Y.

   Calculate each stock's required rate of return. Round your answers to one decimal place.

3. r_x =   %

   r_y =   %

4. On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

   Stock X or Stock Y?

5. Calculate the required return of a portfolio that has $7,500 invested in Stock X and $2,500 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

   r_p =   %

6. If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?

   Stock X or Stock Y?

If it were unlevered, the overall firm beta for Wild Widgets Inc. (WWI) would be 0.7. WWI has a target debt/equity ratio of 1. The expected return on the market is 0.1, and Treasury bills are currently selling to yield 0.04. WWI one-year bonds (with a face value of $1,000) carry an annual coupon of 3% and are selling for $983.52. The corporate tax rate is 37%.(Round your answers to 2 decimal places before the percentage sign. (e.g., 10.23%)) a. WWI’s before-tax cost of debt is 4.73 4.73 Correct %. b. WWI’s cost of equity is 10.84 10.84 Incorrect %. c. WWI’s weighted average cost of capital is 6.91 6.91 Incorrect %

A stationary bicycle wheel of radius 0.7 m is mounted in the vertical plane (see figure below). The axle is held up by supports that are not shown, and the wheel is free to rotate on the nearly frictionless axle. The wheel has mass 4.1 kg, all concentrated in the rim (the spokes have negligible mass). A lump of clay with mass 0.5 kg falls and sticks to the outer edge of the wheel at the location shown. Just before the impact the clay has speed 6 m/s, and the wheel is rotating clockwise with angular speed 0.29 rad/s. (Assume +x is to the right, +y is upward, and +z is out of the page. Assume the line connecting the center to the point of impact is at an angle of 45° from the horizontal.)

(a) Just before the impact, what is the angular momentum (magnitude and direction) of the combined system of wheel plus clay about the center C?

(b) Just after the impact, what is the angular momentum (magnitude and direction) of the combined system of wheel plus clay about the center C?

(c) Just after the impact, what is the angular velocity (magnitude and direction) of the wheel?

If P(A)=0.8, P(B)=0.5, and P(C)=0.4, find P(A ∩ (B^c ∪ C^c )) if A, B, and C are independent.

The Little Theatre is a nonprofit organization devoted to staging plays for children. The theater has a very small full-time professional administrative staff. Through a special arrangement with the actors’ union, actors and directors rehearse without pay and are paid only for actual performances.

The Little Theatre had tentatively planned to put on five different productions with a total of 50 performances. For example, one of the productions was Peter Rabbit, which had a five-week run with three performances on each weekend. The costs from the current year’s planning budget appear below.

Some of the costs vary with the number of productions, some with the number of performances, and some are fixed and depend on neither the number of productions nor the number of performances. The costs of scenery, costumes, props, and publicity vary with the number of productions. It doesn’t make any difference how many times Peter Rabbit is performed, the cost of the scenery is the same. Likewise, the cost of publicizing a play with posters and radio commercials is the same whether there are 10, 20, or 30 performances of the play. On the other hand, the wages of the actors, directors, stagehands, ticket booth personnel, and ushers vary with the number of performances. The greater the number of performances, the higher the wage costs will be. Similarly, the costs of renting the hall and printing the programs will vary with the number of performances. Administrative expenses are more difficult to pin down, but the best estimate is that approximately 65% of the budgeted costs are fixed, 20% depend on the number of productions staged, and the remaining 15% depend on the number of performances.

After the beginning of the year, the board of directors of the theater authorized expanding the theater’s program to four productions and a total of 54 performances. Not surprisingly, actual costs were considerably higher than the costs from the planning budget. (Grants from donors and ticket sales were also correspondingly higher, but are not shown here.) Data concerning the actual costs appear below:

Required:

1. Prepare a flexible budget performance report for the year that shows both spending variances and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)