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Important information about Expected Return/Standard Deviation

Suppose you have invested in only two stocks, Y and Z. The returns on the two stocks depend on the following three states of the economy, which are equally likely to happen. State of Economy Return on Stock Y (%) Return on Stock Z (%) Recession 6.30 -3.70 Normal 10.50 6.40 Boom


Common stock A has an expected return of 10%, a standard deviation of future returns of 25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50. Which stock is riskier. Explain.

The World of Finance

1. How are NYSE and NASDAQ similar, if at all? 2. How are the two exchanges different from one another, if at all? 3. What is The Public Company Accounting and Investor Protection Act of 2002? Describe the law in your own words. 4. What other information can you provide these students that will one day help them in t


1. Buck Inc. is considering an expansion project that requires an investment of $90 million in machinery. This is expected to produce sales of $140 million in year 1 and $150 million in year 2. The machinery will be depreciated over two years on a straight-line basis to a zero book value. The machinery will be

Present Value Finance Problem

You put $800 into an investment that pays $70 in year 1, $70 in year 2, $190 in year 3 and $680 in year 4. The cost of capital is 9%. Answer the following questions. a) Find the net present value of the investment b) Find the internal rate of return for the investment c) Should you make the investment? Explain.

Hedge Funds

A hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one's exposure to unwanted risk. To put it simple, hedge means that a buy some asset in one market and sell that same asset (or similar assets, gold and si

Corporate finance

1.What is the future value of $1,000, placed in a saving account for four years if the account pays 8%, compounded quarterly? 2..Your brother, who is 6 years old, just received a trust fund that will be worth $25,000 when he is 21 years old. If the fund earns 10 percent interest compounded annually, what is the value of the

Price of Stock Range of Variables

Need help determining stock values based on a range of variables... Consulting Inc. is presently enjoying relatively high growth because of a surge in the demand for its new services. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the gr

Finance Case

CASE-75M Student Version 12/9/2010 Federal Finance Bank Going Public Note: Only questions 1, 2, 5, 6, 7, 8 and 9 are addressed. This model was developed using Microsoft Excel 5.0 for windows. If you are using the student version of the model, some of the cells have been blanked

Expected rate of returns

Stock Beta Current Price Expected Price Expected Dividend X 0.8 $12.5 $13.1 $0.8 Y 1.1 $8.25 $9.76 $0.20 Z 2.1 $25.7 $30.0

Personal finance

Personal Finance 1. If you credit application is denied, you a. are entitled to know the specific reason you were denied credit b. can have the police send a detective to investigate the lender c. don`t have any rights provided by law d. can take your case to small claims court for a jury trial 2. If creditors give you n

Personal Finance

Personal Finance 1. Of the following statements, which is not a huge disadvantage of using credit? a. it can be costly to use b. it can be difficult to use repay if overused c. it is more difficult to obtain than repay d. it may tempt you to make impulse purchases 2. Improper use of credit may a. increase your ability t

Compute an exponential smoothing forecast with a=0.20, an adjusted exponential smoothing forecast with a=0.20 and b=0.20 and a linear trend line forecast. Compare the three forecasts using MAD and average error (E) and indicate which forecast seems to be most accurate.

The Oceanside hotel is adjacent to city coliseum, a 24,000-seat arena that is home to the city's professional basketball and ice hockey teams and that hosts a variety of concerts, trade shows, and conventions throughout the year. The hotel has experienced the following occupancy rates for the nice years since the coliseum opene

Finance: Cost of Borrowing Alternatives

Exxon Mobil has a 34% tax rate and has decided to issue $100 million of seven-year debt. It has three alternatives. A U.S. public offering would require an 8% coupon with interest payable semiannually and $900,000 of flotation expense. A U.S. private placement would require an 8-3/8% coupon with interest payable semiannually a

distortions in common sizing and financial analysis

There are times when the data can give you some inaccurate predictions. Personally, when I audit a company, I typically use 5 years worth of data. I use 5 years because that is all that our computer software is programed to hold. But, the data is only useful if it is comparable. When a company is in a transition, the numbers

Effective Annual Rate..

First Choice Bank charges 9% APR compounded quarterly on its business loans. National Emerald Bank charges 3% APR compounded monthly. What are the EARs for the two banks, which bank is the better choice?

When is a trend better than year over year comparisons?

Vertical vs Horizontal analysis. Should someone put more emphasize on one type over the other? These two methods are only two methods in an entire arsenal of ways of analyzing a company. Both have benefits and limitations. Everybody has discussed what they are and some have expressed their purposes. But, how can they be use

How much money would the farmer receive from hedging

A farmer anticipates harvesting 50,000 bushels of wheat in September. How much money would the farmer receive from hedging by selling eight contracts of September wheat at a settlement price of $6.32 per bushel (a) today and (b) delivery?

Two robotic machines are available to make the cell phone

Your company, which is financed entirely with common equity, plans to manufacture a new product, a cell phone that can be worn like a wristwatch. Two robotic machines are available to make the phone, Machine A and Machine B. The price per phone will be $250.00 regardless of which machine is used to make it. The fixed and vari

Breakeven points for Machines A and B

"Assume that you and your brother plan to open a business that will make and sell a newly designed type of sandal. Two robotic machines are available to make the sandals, Machine A and Machine B. The price per pair will be $19.50 regardless of which machine is used. The fixed and variable costs associated with the two machines a

Annual payments - principal and loan

You have been approved for a $80,000 loan toward the purchase of a new home at 15% interest. The mortgage is for 30 years. 1. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. 2. How much of your first payment will go towards the principal and how much towards the interest in year 1?


You have been approved for a $70,000 loan toward the purchase of a new home at 10% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. $7425 $8690 $5740 None of the above First Choice Bank pays 9% APR compound

Calculating expected return, risk-free rate and more...

1. A stock has an expected return of 13 percent, its beta is 0.55, and the risk-free rate is 7.15 percent. What must the expected return on the market be? 2. You own a portfolio equally invested in a risk free asset and two stocks. If one of the stocks has a beta of 1 and the total portfolio is equally as risky as the market,

Incremental analysis - Sally's spaghetti sauce

Can you help me get started with this assignment? ****************** Production Jars of sauce Ingredient cost (variable) 16,000 Labor cost (variable) 9,000 Rent (fixed) 4,000 Depreciation (fixed) 6,000 Other (fixed) 1,000 Total 36,000 Consider the production cost information for Sal

Company fare after his inevitable departure

In 1965, Warren Buffett acquired control of a New England textile business called Berkshire Hathaway for about $10 a share. Today the stock sells for around $135,000 a share and Mr. Buffett is the second richest person in America. The stock has never paid a dividend. How does this amazing success fit the theory that the value of

Capital Budgeting

1. Front up cost of plant is $100 million. Profits of $30million at the end of every year. Calculate the NPV if the cost of capital is 8%. Should you take the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. 2. Upfront costs

Mutual Funds Compared to Individual Stock

How do packaged products like mutual funds compare to individual stock ownership? Do people become less attached to a mutual fund compared to a stock or stock certificate? What does this say about possible long term returns the investor may earn?