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Risk Analysis

5 short finance questions.

Look at attached document. 8-1 EXPECTED RETURN A stock's returns have the following distribution: Calculate the stock's expected return, standard deviation, and coefficient of variation. 8-3 REQUIRED RATE OF RETURN Assume that the risk-free rate is 6% and the expected return on the market is 13%. What is the requ

Corporate finance

A project has an expected cash flow of $300 in year 3. The risk free interest rate is 5%. The market risk premium is 8%. The projects Beta is 1.25. Calculate the certaintly equivalent cash flow for year 3. you invest equal amounts in a portfolio with an expected return of 16% and a standard deviation of returns of 20% and

Composite cost of capital

A firm plans to raise $4 million by borrowing at an interest rate of 16% and to raise $1 million by issuing common stock. The firm's stock has a beta coefficient of 2, the risk free interest rate is 6%, the average rate of return on stock is 9% and the marginal tax rate is 25%. What is the firm's composite cost of capital?

Risk-free rate computation

A firm is applying capital budgeting to a foreign investment opportunity in England. The risk-free rate in England is 3.83 percent and the risk-free rate in the United States is 3.56 percent. Regressing the firmâ??s return against the FTSI results in a beta of 1.20. The historical return on the FTSI is 9 percent. Calculate the

Measures of the Risk-Adjusted Rate of Return on a Stock

(a) Explain why buying stocks with the lowest price/earnings per share (P/E) ratios may or may not be a good investment strategy. (b) Explain why buying stocks with the lowest beta values may or may not be a good investment strategy. (c) Compare and contrast the Sharpe and Treynor measures of the risk-adjusted rate of return on

FINANCE QUESTION

In answering the following questions, it is given that the potential investment has the following range of possible outcomes and probabilities: 10% probability of a -20% return, 40% probability of a 15% return, 40% probability of a 25% return, and a 10% probability of a 50% return. (a) Calculate the weighted mean of the probabil

Price of a Call Option with a Strike Price

A stock is currently priced at $24 per share, the standard deviation of its return is 60% a year, and the risk free rate is 4 percent per year. The firm pays $0.30 quarterly ($1.20 a year) dividend per share. What is the price of a call option with a strike price of $25 and a maturity of three months? Show all work.

Fair Market Value of Apple

How would I determine the fair market value of Apple Inc. (AAPL) stock prices using the RIM model and Price Ratio Analysis, (given that Apple doesn't pay dividends)? Is Apple undervalued, over valued or current at the level it should be?

CAPM and SML Model

A regression was run between Stock B and the market proxy portfolio, the S&P 500. The regression line is defined as: Y = 8.3 + 1.2X. If the risk-free rate is 4 percent, the market risk premium is 6 percent, and the market return on Stock B is 10.5 percent, (a) graph the security market line (SML) for Stock B. (b) determine

Market Efficiency

Four companies are in fast expanding sectors. Each has a steady price to earnings ratio (P/E). Each company is about to publicize new products that could boost their earning per share (EPS). In one case a company will make known that the FDA has rejected a proposed new drug. In each case, analysts will be able to immediately pro

Risk and Expected Returns

US Operations of Audi has been requested by the home office in Frankfurt to estimate the expected return on investment (ROI) and risk for 2010. Audi makes the most fuel-efficient motor vehicles in the US market, sales and profits and would benefit from higher fuel prices. On the other hand, a revelation of further sudden accel

Rates of Return

You are considering a security with the following possible rates of return: Probability Return (%) 0.30 9.5 0.15 12.0 0.25 15.0 0.30 16.0 Calculate the expected rate of return and the standard deviation of the returns. Probability Return (%) 0.15 6

Financial Statement Analysis

Your parents are considering investing in PepsiCo common stock. They ask you, as an accounting expert, to make an analysis of the company for them. The financial statements of PepsiCo can be found at the company's website, www.pepsico.com. Note that all dollar amounts are in millions. Instructions Refer to PepsiCo's finan

Question about Black Scholes

A call option matures in 6 months. The underlying stock price is $85, and the stock's return has a standard deviation of 20 percent per year. The risk-free rate is 4 percent per year, compounded continuously. If the exercise price is $0, what is the price of the call option?

Current Stock Price

Estimating current stock price with beta, risk free rate, and market premium.

Managerial Economics

2. How do the concepts of accounting profit and economic profit differ? Why is economic profit smaller than accounting profit? What are the three basic sources of economic profit? Classify each of the following according to those sources: a. A firm's profit from developing and patenting a new medication that greatly red

Law and economic models of tort

ECON 303: Law and Economics Assignment 2: SC 2009 Due: Friday October 9th; Econ Department Office, level 6, OGG Each question is worth 20 marks. 1. Beetle loves listening to music on his IPOD. He walks along the street, plugged in, and oblivious to what is happening around him. Beetle steps onto the road, doesn't hea

Computations for the six ratios listed under each part Hershey & Tootsie 2007

Prepare a four-column worksheet in Excel, column 1 to write the ratio names, column 2 to show the calculation of each ratio for Tootsie Roll Industries, column 3 to show the calculation of each ratio for The Hershey Company, and column 4 to include your DETAILED comments about each ratio and what the ratio tells you about each c

INVESTMENT ANALYSIS

ANNA is planning to form a new firm with initial investment of $8Million, there are two projects available for her to choose. the first project offers a 40% chance of a $12.5 million payoff and a 60% chance of a $6 million payoff. the second project offers a 40% chance of a $20 million payoff and a 60% chance of a $4 payoff.

Finance with a mixed portfolio

If the market value of common stock of a real estate company is 6 million and the value of its debt is 4 million with a beta of 1.5 and the risk premium on the market is 6% and the treasury bill rate is 4% and the debt is risk free and the real estate company pays no tax What is the required return on the real estate compan

Calculating beta and net present value

If T-Bills have a 4% rate and the expected portfolio return is 12% How would I use the capital asset pricing model to determine What the required investment with a beta of 1.5 and how do i determine NPV with a beta of .8 and the retun is projected to be 9.8% and with a 11.2% market retun from stock x, what is the be

Pricing

1. Calculating standard deviation and rates of return Year 2004 2005 2006 2007 2008 Rate of Return A 70% -50% 50% 40% 20% Rate of Return B 105% 80% -10% -20% 50% Calculate the arithmetic return and the standard deviation of returns. 2. Expected return and pricing Your discount rate is 12% Dividend

Calculating Risk and Return

Risk Analysis: Given the following information, calculate the expected value for Firm C's EPS. Data for Firms A and B are as follows: E(EPSA) = $5.10, and oA =$3.61; E(EPSB) = $4.20, You are given that oC = $4.11. Discuss the relative riskiness of the three firms' earnings. You are given that oC = $4.11. Discuss the relative r

portfolio (weighted average) expected rate of return

You are considering investing in a portfolio of the common stocks of four publicly-traded companies with betas as follows: ABC: 0.7 DEF: 0.9 GHI: 1.3 JKL: 1.9 If the risk-free rate is 4% and the market rate is 10%, what is your expected rate of return in: ABC? DEF? GHI? JKL? e. If your po

BP NPV and Interest Rates: The Increase Volatility

BP recently evaluated a proposal for switching to a new system of storage for refined petroleum products (which loses less product to evaporation). According to their analysis of the project, the initial investment required for the project is $50 million, and the project is expected to yield $10 million in returns (the value of

If the beta of Amazon.com is 2.2, risk-free rate is 5.5% and the market risk premium is 8%, calculate the expected rate of return for Amazon.com stock: If the beta of Exxon Mobil is 0.65, risk-free rate is 4% and the market rate of return is 14%, calculate the expected rate of return from Exxon:

1a. If the beta of Amazon.com is 2.2, risk-free rate is 5.5% and the market risk premium is 8%, calculate the expected rate of return for Amazon.com stock: A. 15.8% B. 14.3% C. 35.2% D. 23.1% 1b.If the beta of Exxon Mobil is 0.65, risk-free rate is 4% and the market rate of return is 14%, calculate the ex

Risk & Variance

1. As the number of stocks in a portfolio is increased: A. Unique risk decreases and approaches to zero B. Market risk decreases C. Unique risk decreases and becomes equal to market risk D. Total risk approaches to zero 2. A statistical measure of the degree to which securities' returns move together is called:

Risk Analysis: Required Return

Adriatic Corporation's stock had a required return of 11.50% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Now suppose there is a shift in investor risk aversion, and the market risk premium increases by 2%. The risk-free rate and Adriatic's beta remain unchanged. What is Adriatic's new r