Greta, an elderly investor, has a degree of risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 1-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 8% per year, with a SD of 23%. The hedge fund risk premium is estimated at 10% with a SD of 40%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced by this claim.
a-1. Assuming the correlation between the annual returns on the two portfolios is indeed zero, what would be the optimal asset allocation? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
S&P-
Hedge-
a-2. What is the expected risk premium on the
portfolio? (Do not round intermediate calculations. Enter
your answers as decimals rounded to 4 places.)
Expected risk premium-
In: Finance
George Johnson recently inherited a large sum of money; he wants to use a portion of this money to set up a trust fund for his two children. The trust fund has two investment options: (1) a bond fund and (2) a stock fund. The projected returns over the life of the investments are 8% for the bond fund and 20% for the stock fund. Whatever portion of the inheritance George finally decides to commit to the trust fund, he wants to invest at least 40% of that amount in the bond fund. In addition, he wants to select a mix that will enable him to obtain a total return of at least 5.5%.
a.Formulate a linear programming model that can be used to determine the percentage that should be allocated to each of the possible investment alternatives. If required, round your answers to three decimal places. Let B = percentage of funds invested in the bond fund S = percentage of funds invested in the stock fund
Max
|
B | + | S | |||
| s.t. | ||||||
| B | ≥
|
Bond fund minimum | ||||
| B | + | S | ≥
|
Minimum return | ||
| B | + | S | =
|
Percentage requirement |
b.Solve the problem using the graphical solution procedure. If required, round the answers to one decimal place. Optimal solution:
B =
S =
Value of optimal solution is= %
In: Math
Problem 2-25 (Algorithmic)
George Johnson recently inherited a large sum of money; he wants to use a portion of this money to set up a trust fund for his two children. The trust fund has two investment options: (1) a bond fund and (2) a stock fund. The projected returns over the life of the investments are 8% for the bond fund and 20% for the stock fund. Whatever portion of the inheritance he finally decides to commit to the trust fund, he wants to invest at least 40% of that amount in the bond fund. In addition, he wants to select a mix that will enable him to obtain a total return of at least 5.5%.
| Let B | = | percentage of funds invested in the bond fund |
| S | = | percentage of funds invested in the stock fund |
| B | + | S | ||||
| s.t. | ||||||
| B | Bond fund minimum | |||||
| B | + | S | Minimum return | |||
| B | + | S | Percentage requirement |
In: Advanced Math
QUESTION 66
The following information applies to the next 10 problems.
|
The Wallace Corporation is a zero growth firm with an expected EBIT of $800,000 on a permanent basis, and corporate tax rate of 40 percent. Wallace uses no debt, and the cost of equity to an unlevered firm in the same risk class is 12.0 percent. The firm has 100,000 shares outstanding. |
What is the value of the firm?
|
$2,500,000 |
||
|
$2,800,000 |
||
|
$3,800,00 |
||
|
$4,000,000 |
||
|
$4,400,000 |
1 points
QUESTION 67
What is the EPS (earnings per share) of the firm?
|
$4.0 |
||
|
$4.2 |
||
|
$4.4 |
||
|
$4.6 |
||
|
$4.8 |
1 points
QUESTION 68
What is the price per share of the firm's stock?
|
$34 |
||
|
$36 |
||
|
$38 |
||
|
$40 |
||
|
$44 |
1 points
QUESTION 69
The following information applies to the next 7 problems.
|
Now, the Wallace Corporation decides to change its capital
structure by borrowing $1.5 million at 8% interest on a permanent
basis, and repurchasing some of its stocks. |
What is the value of the firm with $1.5 million debt, according to MM with corporate taxes?
|
$3,600,000 |
||
|
$3,800,000 |
||
|
$4,350,00 |
||
|
$4,600,000 |
||
|
$5,250,000 |
1 points
QUESTION 70
What is the value of equity?
|
$2,700,000 |
||
|
$3,100,000 |
||
|
$3,350,000 |
||
|
$3,450,000 |
||
|
$3,750,000 |
1 points
QUESTION 71
What is the firm's cost of equity when the firm uses $1,500,000 debt?
|
12.5% |
||
|
13.16% |
||
|
13.54% |
||
|
14.25% |
||
|
15.16% |
1 points
QUESTION 72
What is the stock price of the firm at which shares are repurchased?
|
$38 |
||
|
$40.33 |
||
|
$43 |
||
|
$44 |
||
|
$46 |
1 points
QUESTION 73
What is the number of shares the firm repurchases with $1,500,000?
|
32,609 |
||
|
34,091 |
||
|
34,884 |
||
|
37,190 |
||
|
39,474 |
1 points
QUESTION 74
What is the EPS (earnings per share) of the firm, when the firm uses $1,500,000 debt?
|
$5.35 |
||
|
$5.53 |
||
|
$5.77 |
||
|
$6.05 |
||
|
$6.42 |
1 points
QUESTION 75
What is the firm's value when both corporate and personal taxes are considered. Assume that the personal tax rates of Wallace's investors are 30 percent on debt (interest) income and 20 percent (on average) on income from stocks.
|
$4,00,000 |
||
|
$4,211,333 |
||
|
$4,314,286 |
||
|
$4,471,429 |
||
|
$4,600,000 |
In: Finance
What is the effect of decreasing the money supply on the interest rate?
Question 1 options:
|
Decrease the interest rate |
|
|
Increase the interest rate |
Question 2 (1 point)
What is the main cost of holding money/cash?
Question 2 options:
|
Prices of goods |
|
|
The real inflation rate |
|
|
The nominal interest rate |
|
|
The rate of inflation |
Question 3 (1 point)
What should the Federal Reserve do in the bond market to address a recession?
Question 3 options:
|
Sell bonds in order to decrease the money supply |
|
|
Buy bonds in order to increase the money supply |
|
|
Buy bonds in order to decrease the money supply |
|
|
Sell bonds in order to increase the money supply |
Question 4 (1 point)
Which of the following is true about interest rates?
Question 4 options:
|
There is a maximum rate which results in liquidity traps |
|
|
There is a zero lower bound which results in liquidity traps |
|
|
There is a maximum rate which stifles investment |
|
|
There is a zero lower bound which results in bank runs |
Question 5 (1 point)
What is the effect of the Federal Reserve selling bonds in the AD/AS model?
Question 5 options:
|
Decrease aggregate demand |
|
|
Increase aggregate demand |
|
|
Increase short-run aggregate supply |
|
|
Decrease short-run aggregate supply |
Question 6 (1 point)
Suppose that the MPC is 0.75 and the government reduces spending by $20 billion. How much will the aggregate demand curve shift as a result?
Question 6 options:
|
Increase AD by $15 billion |
|
|
Reduce AD by $15 billion |
|
|
Reduce AD by $20 billion |
|
|
Increase AD by $80 billion |
|
|
Reduce AD by $80 billion |
|
|
Increase AD by $20 billion |
Question 7 (1 point)
If the government lowers taxes, what will happen in the AD/AS model?
Question 7 options:
|
Short-run aggregate supply will decrease |
|
|
Aggregate demand will decrease |
|
|
Long-run aggregate supply will decrease |
|
|
Short-run aggregate supply will increase |
|
|
Aggregate demand will increase |
|
|
Long-run aggregate supply will increase |
Question 8 (1 point)
Which of the following fiscal policies would increase aggregate demand?
Question 8 options:
|
Increase government spending |
|
|
Lower rates by buying bonds |
|
|
Reducing the reserve rate |
|
|
Increase taxes |
Question 9 (1 point)
Which of the following is not an automatic stabilizer?
Question 9 options:
|
Unemployment insurance |
|
|
Infrastructure spending |
|
|
Food stamps |
|
|
Income taxes |
Question 10 (1 point)
Which of the following faces a bigger lag in terms of implementation?
Question 10 options:
|
fiscal policy |
|
|
monetary policy |
In: Economics
If 2 of the 50 subjects are randomly selected without replacement, find the probability that the first person tested positive and the second person tested negative.
_______________
|
Positive Test Results: |
44 |
|
Negative Test Results: |
6 |
|
Total Results: |
50 |
In: Math
Consider the current and pro forma financial statements that follow.
2018 2019
Sales 200 220
Variable Costs 100 110
Fixed Costs 80 80
Net Income 20 30
Dividends 10 22
Current Assets 120 132
Fixed Assets 200 200
Total Assets 320 332
Current Liabilities 40 44
Long-Term Debt 40 40
Common Stock 40 40
Retained Earnings 200 208
Total Liabilities and Equity 320 332
AFN = 0
Compute the following ratios for 2018 and 2019:
2018 2019
Current Ratio ________ ________
Debt to Assets Ratio ________ ________
Sales to Assets Ratio _______ ________
Net Profit Margin ________ ________
Return on Assets ________ ________
Return on Equity ________ ________
Comment on any trends revealed by your ratio analysis.
In: Finance
Interest rates always increase as the length of time until
repayment increases.
Question 7 options:
| True | |
|
False |
Two years ago you bought a bond with a 5% coupon that matures ten years from now. Today the interest rate on similar bonds is 10%. This bond sells at
Question 8 options:
|
|||
|
|||
|
Donuts Delite just paid an annual dividend of $1.10 a share. The firm expects to increase this dividend by 8 percent per year the following three years and then decrease the dividend growth to 2 percent annually thereafter. Which one of the following is the correct computation of the dividend for year 5?
Question 11 options:
|
|||
|
|||
|
|||
|
|||
|
In: Finance
An Anesthesiologist claims that a certain medication decreases the pain level of post-operative patients within 20 minutes. Fourteen Patients are randomly chosen and asked to give a number from 1-10 that represents his/her pain level as soon as waking up from surgery and then again in 20 minutes after taking the medication. The pain level for patients before and after the medication is recorded below. Assume the pain levels are normally distributed. Use 0.05 as the level of significance, as well as d indicates the mean difference: patient pain level before medication - patient pain level after medication.
Chose the appropriate hypotheses set up for this situation.
|
Patient Pain Level |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 | 11 | 12 | 13 | 14 |
|
Pain Level Before Medication |
8 |
10 | 9 | 6 | 3 | 8 | 7 | 5 |
4 |
10 | 8 | 5 | 7 | 9 |
|
Pain Level After Medication |
7 |
5 | 1 | 3 | 5 | 7 | 4 | 8 |
6 |
9 | 7 | 1 | 9 | 8 |
Based on your choice in part 1 , determine the direction of your hypothesis test.
Right skewed test.
Right-tailed test.
Left-tailed test.
Two-tailed test.
Calculate the test statistics.
Calculate the P-Value for this test statistic.
(Round your answer to 4 decimal places)
Based on your finding in part 4, what would be the appropriate decision?
|
Accept the null hypothesis. |
||
|
Fail to Reject the alternative hypothesis. |
||
|
Reject the alternative hypothesis. |
||
|
Fail to Reject the null hypothesis. |
||
|
Reject the null hypothesis. |
Based on your finding from part 5,
a.) What type of error could have occurred potentially?
b.) Explain the reasoning of the type of error of your choice.
Based on your findings from previous parts (1-5), which one of the statements below would be true?
|
The data does not support the anesthesiologist’s claim that the medication given to patients after surgery reduces pain within 20 minutes. |
||
|
The data supports the anesthesiologist’s claim, but not enough to conclude that the medication given to patients after surgery reduces pain within 20 minutes. |
||
|
The data supports the anesthesiologist's claim that the medication given to patients after surgery reduces pain within 20 minutes. |
In: Statistics and Probability
Data on 72 randomly selected flights departing from the three major NYC airports in 2013.
Departure delays in minutes. Negative times represent early departures.
| dep_delay |
| -4 |
| -3 |
| 58 |
| -5 |
| -5 |
| -4 |
| -1 |
| -1 |
| -1 |
| -3 |
| -5 |
| -7 |
| -5 |
| -4 |
| -5 |
| -8 |
| -2 |
| 4 |
| -1 |
| 0 |
| 11 |
| -5 |
| 37 |
| 22 |
| 65 |
| 6 |
| -1 |
| 19 |
| 16 |
| -5 |
| 178 |
| -3 |
| -5 |
| 4 |
| -1 |
| 4 |
| 15 |
| -3 |
| -7 |
| -6 |
| -7 |
| -3 |
| -5 |
| 51 |
| -4 |
| -6 |
| -1 |
| -7 |
| -11 |
| 2 |
| 1 |
| 102 |
| -7 |
| 36 |
| 11 |
| 1 |
| -6 |
| -7 |
| -5 |
| -3 |
| 9 |
| 115 |
| 58 |
| -2 |
| -6 |
| 8 |
| -4 |
| -7 |
| 2 |
| -5 |
| 303 |
| 18 |
Q1. We want to estimate the proportion of flights that departed from the NYC airports in 2013 which are delayed. There are two ways we can do this. We can either obtain a point estimate or calculate an interval estimate. Provide estimates using both methods. Use a 99% confidence level. Show all working, define variables and state the distribution as needed.
In: Statistics and Probability