1. You know that someone invested $1,500 in the Ec140 mutual fund ten years ago (and they reinvested all dividend and capital gains distributions). You now learn that their balance in the fund has grown to $9,245. (a) What has the geometric rate of return been for the Ec140 fund for the last ten years? (b) What do you know ab
1. Suppose that the Beauty Company faces the choice of introducing a new beauty cream or investing the same amount of money in Treasury bills with a return of $10,000.00. If the company introduces the beauty cream, there is an 80 percent probability that a competing firm will introduce a similar product and a 20 percent chance
1. The table below summarizes the payoffs you can expect to receive from investing in a limited partnership owning interests in an oil field. If the field is leased, you will receive the base lease amount plus royalties on any oil discoveries. If the field is drilled for oil, you will receive your share of the oil value. If
1) Canyon Inc. has two divisions: Division A makes up 50 percent of the company, while Division B makes up the other 50 percent. Canyon's beta is 1.2. Looking at stand-alone competitors, Canyon's CFO estimates that Division A's beta is 1.5, while Division B's beta is 0.9. The risk-free rate is 5 percent and the market risk p
Brandon Inc. consists of 2 divisions of equal size, and Brandon is 100 percent equity financed. Division A cost of equity capital is 9.8 percent, while Division B cost of equity capital is 14 percent. Brandon's composite WACC is 11.9 percent. Assume that all Division A projects have the same risk and that all Division B proje
5. Company XYZ studied the relationship between the states of nature and the corresponding returns for both XYZ stock and the S&P 500 index. This is reported on the table below where we asume that there are 2 states. Probability XYZ S&P 500 Boom Times 0.8 12.30% 14.20% Bad Times 0.2 -2.70% -6.80
Stock price at the end of the year. See attached file for full problem description. The beta of a stock is 1.2 and at the beginning of the year is selling for $55. The expected rate of return on the market portfolio is 9%, while the risk free rate of return is 3%. The stock is expected to pay a dividend of $2 at the end of t
5) If the expected returns for the risk-free asset and a risky asset are 4% and 17% respectively, what percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.11? 6) Discuss how the CAPM might be used in capital budgeting decisions a
Stock currently sells for 35.02 a share, the market required rate of return is 17%, the beta is 0.10, ant the risk-free rate of return is 3.3%. If I were to hold this stock for 2 years what is the future value of the stock expected at the end of year two?
Please help with the following problem. I have a 4 million dollar investment fund it consists of 4 stocks stock investment beta a 400000 1.50 b 600000 -0.50 c 1000000
1. An investment costs $3,000 today and provides cash flows at the end of each year for 20 years. The investment's expected return is 10 percent. The projected cash flows for years 1, 2, 3 are $100, $200, and $300 respectively. What is the annual cash flow received for each of the years 4 through 20 (17 years)? (Assume the same
I need to know how to calculate the risks on projects and why is it safe or risky. Please give me some advice on how to work this problem.
A $1,000 par value bond with a 10 year maturity date pays $35 quarterly interest. Your required rate of return is 12% with quarterly compounding. How much should you pay for this bond? The growth rate of Campbell Company is expected to be 4% for 1 year, 5% the next year, then 6 % for the following year and then the growth r
3.) Cochran Corporation has a weighted average cost of capital of 11% for projects of average risk. Projects of below-average risk have a cost of capital of 9%, while projects of above-average risk have a cost of capital equal to 13%. Projects A and B are mutually exclusive, whereas all other projects are independent. None of th
For each of the following four groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whether you would expect them to have a relatively high or low price-earnings ratio. a. High-risk companies. b. Companies that have recently experienced a temporary
We discussed cash flow in DQ1. Another measure of value is the company's assets less liabilities or shareholder's equity. We call this the book value of the firm. However the actual fair market value of the firm's assets and liabilities can be far different than the book value which has important implications for valuing a firm.
8. The Bonds of Microfood, Inc. carry a 10% annual coupon, have a $1,000 face value, and nature in 4 years. Bonds of equivalent risk yield 7%. The market value of the bonds should be (assume annual compounding): a. $1,011.20 b. $1,087.25 c. $1,095.66 d. $1,101.62 e. $1,160.25
I would be grateful for an explanation to the attached problem.
Suppose that the following Social Security reform became law: All current Social Security recipients will continue to receive their benefits, but no increase will be made other than cost-of-living adjustments; U.S citizens between age 40 and retirement not yet on Social Security can opt to continue with the current system: those
Consider the role of the finance department at Strident Marks. The finance department has a couple of new hires, and the CFO has asked that you spend a short amount of time with them, catching them up on some areas that are very important to the company at this time. These also happen to be areas for which Strident Marks does no
In view of all of microeconomic concepts such as competition, markets vs Cental Command, Coarse's theorm, hidden costs, allocative efficiency, and market forces, why would it make sense to outsource a function such as human resource management?
Question 1: Assume there are two companies operating in the same industry. The two companies are almost identical. The only difference is their capital structure. Company UU has only equity while company LL has 30% of debt and 70% of equity. Further assume that both companies have the same expected net operating income of
Question 1 Assume you have just been promoted junior financial manager of a company. You are very smart and are planning to be promoted in the next 2-2.5 years. An associate of your company shows you a project with the following cash flows. End of Year Cash Flows 0 -$100,000 1 $40,000 2 $40,000 3 $40,000 4 $40,000 5 -$
Suppose that a risk averse individual has $1, and there are three assets; one safe, and two risky. The safe one yields a sure rate of return of 1. The risky ones have distribution functions F(y1) and F(y2) where assets have independent and identical distributions. Show that both risky assets have the same share in the optima
The average stock market return in 20-ieth century has been 9%. Consider a security whose average return has been 7%, and whose beta is estimated at 0.5. If last year.s average market return was 7%, what would you expect the return on the security to be? Explain. If you think there is not enough information to answer the questi
Portfolios: Replacement of stocks in a portfolio. Stock B can be replaced with one of two stocks : Stock D - expected return 0.15, standard deviation of 0.15 and zero correlation with all other stocks. Stocks E - also has zero correlation with all other stock while it has an expected return of 0.09 and a standard deviation of 0.11. Would you recommend a replacement for stock B and which of the possible replacements would you choose?
Please consider the following stocks: Price per Expected Standard Stock Share Return Deviation Correlation A $25 0.06 0.20 With B = 0.20 B $50 0.08 0.10 With C = 0.45 C $25 0.15 0.15 With A = 0.60 An investor has a $10,000 portfolio that is allocated as
Please see attached problem
If a portfolio is on the capital market line, show that it is perfectly correlated with the market portfolio. Is its beta 1?
Being on the Board of a company is no longer just a situation where a CEO can pack the Board with a bunch of his or her buddies from the country club (with the hope that such Board members will rubber stamp the CEO's requests). Board members are more likely to be taken to task these days for not administering the proper oversigh
Please see the attached file for full problem description. --- Suppose that there is one safe and one risky asset and that the investor has initial wealth . Investing in the risky asset yields the total (principal plus interest) of x(1+r), where r is a random variable with density f(r), r where < 0 < . The safe asset p