Assume you wish to construct a portfolio by investing $4000 in Stock A which has a return of 6% and a standard deviation of 10%. In the portfolio, you will also invest $6000 in stock B which has a return of 20% and a standard deviation of 13%. Assuming that the returns on stock A and on stock B have a correlation coefficient of 0.7, what is the portfolio expected
Q: n July 1868, an entrepreneur issued $1000 bonds (to pay for an access road in a city) the bonds…
A: Bonds are a kind of debt in which interest is paid each year and the face value of the bond is paid…
Q: A project has the following estimated data: Price = $56 per unit; variable costs = $35 per unit;…
A: We can compute the required values using this formulas :c. Financial BEQ is the level of sales where…
Q: Anson Jackson Court Company (AJC) The Anson Jackson Court (AJC) currently has $150,000 market value…
A: Given,The market value of firm is $820,000New capital structure consist of 50% of debt and 50% of…
Q: You want to invest $45,000 in a portfolio with a beta of no more than 1.44 and an expected return of…
A: A portfolio investment involves possessing stocks, bonds, or other financial assets, anticipating…
Q: Alpha Moose Transporters has a current stock price of $33.35 per share, and is expected to pay a…
A: The flotation cost is the cost that will be deducted from the actual worth of an asset. After…
Q: a. Calculate the annual debt-service payments required on the debt. b. Ignoring taxes, estimate the…
A: Debt-service payment is the payment a borrower makes on a regular basis to pay back the principal…
Q: 1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value…
A: The objective of the question is to calculate the Net Present Value (NPV) of a proposed project for…
Q: A retail coffee company is planning to open 95 new coffee outlets that are expected to generate…
A: Capital budgeting is the process by which a corporation examines potential large projects or…
Q: orporation wants to raise $3.9 million via a rights offering. The company currently has 470,000…
A: Given,Spread charge = 5%Subscription price=$23 per shareNumber of shares currently have=470000…
Q: Labeau Products, Limited, of Perth, Australia, has $21,000 to invest in one of the following two…
A: Answer-1Net present value of project X=Present value of annual cash flows - initial…
Q: K Assume Gillette Corporation will pay an annual dividend of $0.65 one year from now. Analysts…
A: Dividend For Year 1 = d1 = $0.65Growth Rate for first 6 Year = g6 = 11.5%Growth rate after year 6 =…
Q: MV Corporation has debt with market value of $100 million, common equity with a book value of $104…
A: The objective of the question is to calculate the weights of debt, preferred stock, and common…
Q: An investor wants to find the duration of a(n) 10-year, 6% semiannual pay, noncallable bond that's…
A: Duration of bond is the weighted period of bond required to recover all cash flow from the bond and…
Q: The market price of a security can be modelled by assuming that it will either increase by 25% or…
A: European Put Option: A financial derivative that gives the holder the right, but not the obligation,…
Q: An example of performing a sensitivity analysis is to change the interest rate from 10% to 8% in a…
A: Sensitivity analysis involves how changes in variables like interest rates impact the financial…
Q: You are considering making a movie. The movie is expected to cost $10.2 million up front and take a…
A: Payback period (PBP) refers to the period or duration within which the company is able to recover…
Q: Zoom Enterprises expects that one year from now it will pay a total dividend of $4.9 million and…
A: Value of shares can be found as the present value of the dividend based on the required rate of…
Q: Katie Pairy Fruits Incorporated has a $2,200 23-year bond outstanding with a nominal yield of 15…
A: Current price of the bonds and present value of the bonds both can be computed using the pv function…
Q: You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: An investor has asked for your help with the following time value of money applications. Table 6-4.…
A: Present value refers to the current value of an asset that will be present at some future date by…
Q: a Cost of debt: Since Mindflex's bonds do not trade very frequently, you have decided to use 9.07…
A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…
Q: project's NPV.
A: Initial Cost $9,700,000Working Capital $309,000Total Outflow as on Day 1$10,009,000
Q: Andyco, Inc., has the following balance sheet and an equity market-to-book ratio of 1.8. Assuming…
A: The objective of the question is to calculate the weight of debt for the Weighted Average Cost of…
Q: With Research 1 No Research F 0.59 2 U 0.41 d₁ 3 4 5 d₂ d₁ d₂ d₁ d₂ 6 7 8 9 10 11 $₁ 0.56 $₂0.44 S,…
A:
Q: Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by…
A: 1. Accounts receivable = Sales/Accounts receivable turnoverAccounts receivable = $600,000/5 = $…
Q: The market value balance sheet for Murray Manufacturing is shown here. The company has declared a 20…
A: Current share price= Market value of equity / Number of common shares outstandingEx-dividend price=…
Q: Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the…
A: IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…
Q: Palmer Corpscomatening the purchase of a new pece of equipment. The cost savings hom the equipment…
A: Payback period (PBP) refers to the period or duration within which the company is able to recover…
Q: a. 5.2% compounded monthly? years, month(s) b. 7.2% compounded monthly? month(s) years, c. 76%…
A: Using Excel's self explanatory function=NPER(r/12,-monthly payment, 0,future value)
Q: When calculating a fair value for a stock you are considering buying you should consider all the…
A: The correct answer to the question is "How long you expect to keep it".The duration of the…
Q: Complete the following table showing effects of changes in retirement "risk variables" on periodic…
A: Retirement planning is the process of setting financial goals and creating a strategy to secure a…
Q: son, age 14, was given a choice of $60,000 to be deposited ould fund 80% of lump sum cost of 4 years…
A: Value of money changes with time and value of money would not be same over the period due to the…
Q: A BBB-rated corporate bond has a yield to maturity of 12.4%. A U.S. Treasury security has a yield…
A: A treasury bill is a kind of debt security issued by the government and private companies to raise…
Q: The price of Cilantro, Incorporated, stock will be either $73 or $95 at the end of the year. Call…
A: Here,Risk Free Rate is 4%Time Period is 1 yearStock Price is $84Price after one year can be $73 or…
Q: You hear on the news that the S&P 500 was down 2.1% today relative to the risk-free rate (the…
A: Excess return to Zynga=Zynga Beta*Market excess return.=1.3*(−2.1%)=−2.7%
Q: You expect to receive $5,000 at Graduation one year from now. Your plan is to invest this money at…
A: The time value of money is a concept that recognizes the principle that money available today is…
Q: An unlevered firm has a value of $900 million. An otherwise identical but levered firm has $180…
A: Tax savings on account of interest expense= Amount of debt * Interest rate * Tax %=180*4%*25%=$1.8…
Q: 1. A company just paid dividends of $2.75 per share. The company has a constant growth of 5.5%. The…
A: We will use the dividend discount model here. As per the dividend discount model the value of a…
Q: Calculate the missing values and express your answers rounded to two decimal places a. b. Cost $0.00…
A: Mark up refers to the amount added to the costs. The formula is Selling Price = Cost + Mark up
Q: Maynard Enterprises paid $1,524 in dividends and $1,312 in interest over the past year. The common…
A: Net income, also known as net profit, is the amount of revenue that remains after deducting all…
Q: a. What is the expected return and standard deviation of returns for each of the two stocks? b. What…
A: Stock risk and returns are fundamental concepts in finance that investors use to assess the…
Q: K Consider the following six months of returns for two stocks and a portfolio of those two stocks:…
A: Here,MonthStock AStock…
Q: HighGrowth Company has a stock price of $20. The firm will pay a dividend next year of $1.03, and…
A: The objective of the question is to calculate the cost of equity capital for HighGrowth Company. The…
Q: State of Economy Boom Bust Probability of State of Economy .65 .35 Rate of Return if State Occurs…
A: a) Calculate the expected return on an equally weighted portfolio:Stock A expected return =…
Q: 16 17 2021 4 Debt/Capital Ratic Projected EPS Projected Stock Price 5 20% $ 4.20 $ 30% $ 4.45 $ 40%…
A: The optimal capital structure refers to the most effective mix of debt and equity that a company…
Q: MV Corporation has debt with market value of $95 million, common equity with a book value of $101…
A: The objective of the question is to calculate the weight of debt in the Weighted Average Cost of…
Q: As required by Basel Agreements, U. S. bank regulators have agreed to a single uniform capital for…
A: Basel Agreements:Basel Agreements are international regulatory frameworks developed to ensure the…
Q: Highland Mining and Minerals Company is considering the purchase of two gold mines. Only one…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: Suppose that in January 2006, Kenneth Cole Productions had sales of $524 million, EBITDA of $54.3…
A: According to bartleby guidelines , if question involves multiple sub parts , then 1st sub 3 parts…
Q: Book Co. has 1.3 million shares of common equity with a par (book) value of $1.30, retained earnings…
A: The objective of the question is to calculate the market value of equity, the market value of debt,…
Step by step
Solved in 3 steps with 6 images
- Suppose Stock A has B = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate is 5%. Also consider that the covariance between B and the market is 0.135. Assume the CAPM is true. Answer the following questions: a) Calculate the expected return on share B. b) Find the equation of the Capital Market Line (CML). c) Build a portfolio Q with B = 0 using actions A and B. Indicate weights (interpret your result) and expected return of portfolio Q.Consider an investment portfolio that consists of three different stocks, with the amount invested in each asset shownbelow. Assume the risk-free rate is 2.5% and the market risk premium is 6%. Use this information to answer thefollowing questions.Stock Weights BetasChesapeake Energy 25% 0.8Sodastream 50% 1.3Pentair 25% 1.0a) Compute the expected return for each stock using the CAPM and assuming that the stocks are all fairly priced.b) Compute the portfolio beta and the expected return on the portfolio.c) Now assume that the portfolio only includes 50% invested in Pentair and 50% invested in Sodastream (i.e., a twoassetportfolio). The yearly-return standard deviation of Pentair is 48% and the yearly-return standard deviation ofSodastream is 60%. The correlation coefficent between Pentair’s returns and Sodastream’s returns is 0.3 What is theexpected yearly-return standard deviation for this portfolio?Suppose that the risk-free rate r, = 0.03, the expected market return uM = 0.11, and the market volatility oM = 0.16. Stock A has beta = 1.2 and diversifiable risk o̟ = 0.08. Stock B has beta = 0.8 and 0, = 0.03. Stock C has beta = 1.5 and o̟ = 0.1. Consider a portfolio P which is 45% in Stock A, 25% in Stock B, and 30% in Stock C. (a) Find the value of beta for this portfolio. (b) Assuming CAPM, find the portfolio's expected return µp. (c) Find the standard deviation of the portfolio's systematic (or mar- ket) risk. (d) Find the standard deviation o, of the diversifiable risk of P. (You may assume that the diversifiable risks of A,B, and C are uncorrelated.)
- Suppose the total risk of Portfolios A, B and C are 49% ², 64%² and 100% ² respectively. The market price of risk is 8%. The Market Portfolio (M) has an expected return and a total risk of 11% and 100% respectively. (a) You want to form another Portfolio H by investing $7,000 in Portfolio A and $3,000 in Portfolio B. Compute the standard deviation of Portfolio H if the correlation coefficient between Portfolio A and Portfolio B is: i) perfectly positively correlated ii) uncorrelated iii) perfectly negatively correlated (b) If the expected return of Portfolio C is 9.4% and it is lying on the Securities Market Line, what is the beta of Portfolio C? State the answer in %². (c) Is Portfolio C a Market Portfolio as it has same level of total risk (i.e. 100% 2) as the Market Portfolio? Why or Why not?If a given stock in the portfolio had established 1.23 beta; the related expected return is at 11.7percent, and 3.5percent is the current earning of a risk-free asset; a. Determine the expected return on a portfolio that is equally invested in the two assets? b. If a portfolio of the two assets has a beta of 0.7, what are the portfolio weights? c. If a portfolio of the two assets has an expected return of 9%, what is its beta? d. If a portfolio of the two assets has a beta of 2.46, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Discuss.An investiment portfolio consists of two securities, X and Y. The weight of X is 30%. Asset X's expected return is 15% and the standard deviation is 28%. Asset Y's expected return is 23% and the standard deviation is 33%. Assume the correlation coefficient between X and Y is 0.37. A. Calcualte the expected return of the portfolio. B. Calculate the standard deviation of the portfolio return. C. Suppose now the investor decides to add some risk free assets into this portfolio. The new weights of X, Y and risk free assets are 0.21, 0.49 and 0.30. What is the standard deviation of the new portfolio?
- Suppose the expected return for the market portfolio and risk-free rate are 13 percent and 3 percent respectively. Stocks A, B, and C have Treynor measures of 0.24, 0.16, and 0.11, respectively. Based on this information, an investor should ______?Consider two types of assets: market portfolio (M) and stock A. The expected return is 8% and standard deviation of the market portfolio is 15%. The risk-free rate is 2%. The standard deviation of market portfolio returns is 15%. The standard deviation of stock A is 30%, and the beta coefficient is 1. Draw the capital market line and show the position of stock A.Asset X has a beta of 1.7 and an expected return of 15.1%. Asset Y has a beta of .70 and an expected return of 8.50%. The risk-free rate is 4.2%. If you wish to hold a portfolio consisting of assets X and Y and have a portfolio beta equal to 1.0, what is the expected return of the portfolio? The final answer should also be rounded to 5 decimal places.
- Consider a portfolio consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected return of each stock. b. Using your answer from part (a), calculate the expected return of the portfolio. c. What is the beta of the portfolio? d. Using your answer from part (c), calculate the expected return of the portfolio and verify that it matches your answer to part (b). a. Compute the beta and expected return of each stock. (Round to two decimal places.) TITLT Data table Portfolio Weight (A) Volatility (B) Correlation (C) Expected Return (E) % Beta (D) НЕС Согр 0.28 13% 0.33 Green Widget (Click on the following icon a in order to copy its contents into a spreadsheet.) 0.39 27% 0.61 % Portfolio Weight Alive And Well 0.33 14% 0.43 Volatility 13% Correlation with the Market Portfolio НЕС Согр Green Widget 0.28 0.33 b. Using your answer from part (a), calculate the expected…You create a portfolio that invests 60% in stock A with E(rA) = 15%, σA = 10% and 40% in stock B with E(rB) = 10%, σB = 4%. 1. Estimate the expected return of the portfolio. 2. Estimate the standard deviation of the portfolio if the two stocks are uncorrelated. 3. Estimate the standard deviation of the portfolio if the two stocks have correlation 0.5. 4. Estimate the standard deviation of the portfolio if the two stocks are perfectly positively correlated.Suppose that there exist two securities (A and B) with annual expected returns equal to ra = 3% and rg = 5% and standard deviations equal to o4 = 7% and oB = 10% respectively. The correlation coefficient between the returns of these securities is p = -0.5. What is the expected return and the standard deviation of an equally weighted portfolio consisting of the securities A and B? Describe every step of your calculations in detail. What is the expected return and the standard deviation of a portfolio consisting of the securities A and B, if the relevant weights are chosen to minimize the risk of the portfolio? Present the minimisation problem and describe every step of your calculations in detail. How could an investor maximize diversification benefits? Critically discuss and explain in detail.
