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Expected Return, Exchange Rates, EBIT and Definitions

1. Portfolio Expected Return. You own a portfolio that has $900 invested in Stock A and $1,700 invested in Stock B. If the expected returns on these stocks are 10 percent and 16 percent, respectively, what is the expected return on the portfolio?

2. Purchasing Power Parity and Exchange Rate. According to purchasing power parity, if a Big Mac sells for $2.39 in the US and kronur 155 in Iceland, what is the kronur/$exchange rate?

3. Canvas Reproductions has fixed operating costs of $12,500, variable operating costs of $10 per unit, and sells its paintings for $25 each. At what level of unit sales will the company break even in terms of EBIT?

4. Fully explain the kind of information the following financial ratios provide about a firm:
A. Cash Ratio
B. Equity Multiplier
C. Long-term debt ratio
D. Profit margin
E. Return on assets
F. Return on equity


Solution Summary

This solution explains:

1) How to calculate portfolio expected return.
2) How to calculate exchange rates based on purchasing power.
3) How to calculate break even production.
4) Various finance defintions.