Your eccentric Aunt Claudia has left you $50,000 in BP shares plus $50,000 cash. Unfortunately, her will requires that the BP stock not be sold for one year and the $50,000 cash must be entirely invested in one of the stocks shown below. Agricultural BHP Billiton BHP Billiton BP 1.00 Siemens Nestlé Sony Sanofi Bank 0.44 0.21 -0.05 0.21 0.15 0.24 BP 1.00 0.40 0.24 0.27 0.36 0.27 Siemens 1.00 0.26 0.33 0.29 0.21 Nestlé 1.00 0.34 0.27 -0.06 Sony 1.00 0.27 0.35 Sanofi 1.00 0.17 Agricultural Bank 1.00 Standard deviation, % 26.2 22.8 22.5 13.6 27.6 17.5 25.5 a. Calculate the portfolio variance for seven different portfolios. Note: Use decimals, not percents, in your calculations. Do not round intermediate calculations. Enter your answers as a decimal rounded to 5 places. b. What is the safest attainable portfolio under these restrictions?

Your eccentric Aunt Claudia has left you $50,000 in BP shares plus $50,000 cash. Unfortunately, her will requires that the BP stock not be sold for one year and the $50,000 cash must be entirely invested in one of the stocks shown below. Agricultural BHP Billiton BHP Billiton BP 1.00 Siemens Nestlé Sony Sanofi Bank 0.44 0.21 -0.05 0.21 0.15 0.24 BP 1.00 0.40 0.24 0.27 0.36 0.27 Siemens 1.00 0.26 0.33 0.29 0.21 Nestlé 1.00 0.34 0.27 -0.06 Sony 1.00 0.27 0.35 Sanofi 1.00 0.17 Agricultural Bank 1.00 Standard deviation, % 26.2 22.8 22.5 13.6 27.6 17.5 25.5 a. Calculate the portfolio variance for seven different portfolios. Note: Use decimals, not percents, in your calculations. Do not round intermediate calculations. Enter your answers as a decimal rounded to 5 places. b. What is the safest attainable portfolio under these restrictions?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Your company, Ohiobucks (OB), hires an investment bank to underwrite an issue of 10 million shares of OB stock on a best-effort basis. The investment bank sells 8 million shares and charges OB $0.225 per share sold. The price of each share is $10.50. How much will the investment bank earn after the issuance? A. $7.0 MM B. $7.5 MM C. $1.8 MM D. $1.0 MM
Amherst Corporation, an investment banking company, often has extra cash to invest. Suppose Amherst buys900 shares of Hurricane Corporation stock at $57 per share, representing less than 5% ofHurricane’s outstanding stock. Amherst expects to hold the Hurricane stock for one month andthen sell it. The purchase occurs on December 15, 2018. On December 31, the market price of ashare of Hurricane stock is $58 per share.Requirements1. What type of investment is this for Amherst? Give the reason for your answer.2. Record Amherst’s purchase of the Hurricane stock on December 15 and the adjustment tomarket value on December 31.3. Show how Amherst would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018.
Lancaster Corporation, an investment banking company, often has extra cash to invest. Suppose Lancaster buys500 shares of Knight Corporation stock at $40 per share, representing less than 5% of Knight’soutstanding stock. Lancaster expects to hold the Knight stock for one month and then sell it.The purchase occurs on December 15, 2018. On December 31, the market price of one share ofKnight stock is $47 per share.Requirements1. What type of investment is this for Lancaster? Give the reason for your answer.2. Record Lancaster’s purchase of the Knight stock on December 15 and the adjustment tomarket value on December 31.3. Show how Lancaster would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018
Don’s Captain Morgan, Inc. needs to raise $12.70 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $20.60 per share and Don’s will receive $16.75 per share. Calculate the underwriter’s spread per share on the issue. (Round your answer to 2 decimal places.) How many shares of stock will Don’s need to sell in order to receive the $12.70 million it needs? (Round your answer to the nearest whole number.)
Stephanie was gifted $50,000.00 from grandparents and is looking to invest in stock options. Stephanie will require a return of at least 9% on her stock investments and would have to pay 25% taxes on any interest income. Dividends will be tax-free. Stephanie wants to invest stock in the following companies1. Pan-Elixir Ltd. is a pharmaceutical company. Its stock is fairly priced. Last year (t = 0), it paid a dividend of $2.50 per share to its shareholders. The company management hasestimated that it will be able to maintain a constant growth rate in dividends of 3% per annum. 2. Rebound Tourism Inc. is a travel planning establishment. Its shares sold for an average price of $40 per share last year (t = 0) and the management estimates to maintain a constant growth rate in dividends. Last year, it paid a dividend of $0.50 per share to its shareholders. 3. Cheers Inc. is a beverage producer. It pays a dividend of $1 per share to its shareholders, which is likely to remain constant over…
Joyce has never invested in shares before. She has come to you, as a prospective finance graduate, for some advice. In your conversations with Joyce, you have determined her Required Rate of Return (RRR) to be 8.75%. d) Joyce decided to buy 200 000 shares in GGG Ltd., giving her 2% ownership in the company (GGG Ltd. currently has 10 000 000 issued shares). One year later, GGG Ltd. announces a private placement of a further 10,000,000 shares, in order to raise funds for their new venture: Project COVID. (i) Describe two features of a private placement of shares. (ii) What is the major disadvantage to Joyce of the above private placement? Include in your answer the effect on her ownership. (iii) Identify one other source of equity funding Joyce, as a shareholder, would prefer. Justify your choice.
Stephanie was gifted $50,000.00 from grandparents and is looking to invest in stock options. Stephanie will require a return of at least 9% on her stock investments and would have to pay 25% taxes on any interest income. Dividends will be tax-free. Stephanie wants to invest stock in the following companies 1. Pan-Elixir Ltd. is a pharmaceutical company. Its stock is fairly priced. Last year (t = 0), it paid a dividend of $2.50 per share to its shareholders. The company management has estimated that it will be able to maintain a constant growth rate in dividends of 3% per annum. 2. Rebound Tourism Inc. is a travel planning establishment. Its shares sold for an average price of $40 per share last year (t = 0) and the management estimates to maintain a constant growth rate in dividends. Last year, it paid a dividend of $0.50 per share to its shareholders. 3. Cheers Inc. is a beverage producer. It pays a dividend of $1 per share to its shareholders, which is likely to remain constant over…
A company has just paid an ordinary share dividend of 32 cents and expected to pay a dividend of 33.6 cents in one year’s time. The company has a cost of equity of 13%. What is the market price of the company’s shares to the nearest cent on an ex dividend basis? $3.20 $4.41 $2.59 $4.20 Use the following information to answer questions 18 and 19 Bill plans to open a service centre. The equipment will cost $50,000. Bill expects the after-tax cash inflows to be $15,000 annually for 8 years, after which he plans to scrap the equipment and retire. What is the project’s regular payback period? 2.67 years 3.33 years 3.67 years 4.33 years Assume the required return is 10%. What is the project’s discounted payback period? 4.25 years 5.25 years 6 years the project does not payback on discounted basis.
Given that Local Care, Inc.'s stock is currently selling for $65 a share, calculate the amount of money that Elijah Pearson will make (or lose) on each of the following transactions. Assume that all transactions involve 100 shares of stock, and ignore brokerage commissions. Input all answers as positive values. He short-sells the stock and then repurchases the borrowed shares at $85.Total of $ . He buys the stock and then sells it some time later at $85.Total of $ . He short-sells the stock and then repurchases the borrowed shares at $50.Total of $ .
FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently there are 18,000 shares outstanding and the price per share is $49. EBIT is expected to remain at $63,000 per year forever. The interest rate on new debt is 10 percent, and there are no taxes. a. Ms. Brown, a shareholder of the firm, owns 250 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Ms. Brown’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 250 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Ms. Brown unlevers her shares and re-creates the original capital structure. What is her cash flow now?…
You own 1,000 shares of stock in Avondale Corp. You will receive a $.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $45 per share. The required return on Avondale stock is 10 percent. a. What is the current share price of your stock (ignoring taxes)? b. If you would rather have equal dividends in each of the next two years by creating homemade dividends, what would be the cash flow for Year 1 and Year 2?
You have $92,000 you would like to invest in three different stocks: MarkyB Inc., JohnJohn Ltd., and Garretts Spaghetti House. You would like to invest no more than $15,000 in Garretts Spaghetti House, and you want the amount you invest in MarkyB Inc., to be at least the amount invested in JohnJohn Ltd. and Garretts Spaghetti House combined. If MarkyB Inc. earns 18% annual interest, JohnJohn Ltd. earns 13% annual interest, and Garretts Spaghetti House earns 6% annual interest, how much money (in dollars) should you invest in each stock to maximize your annual interest earned? What is the maximum annual interest earned? You should invest $ _ into MarkyB Inc., $ _ into JohnJohn Ltd., and $ _ into Garretts Spaghetti House, which will give you give you maximum annual interest $ .

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS