financial advisor evaluates four stocks for inclusion in an investor's portfolio. A orrelation matrix showing each stock's correlation with the other stocks is shown below Stock ALK CMN BTY DLE ALK 0.40 0.58 1.00 -0.25 BTY 0.40 1.00 0.16 -0.04 CMN -.25 .16 1.00 .37 DLE .58 .04 .37 1.00 f the goal is to reduce the investor's overall portfolio risk, which two stocks should the advisor recommend? a. ALK and DLE b. ALK and CMN c. BTY and DLE BTY and CM
Q: Desai Industries is analyzing an average-risk project, and the following data have been developed.…
A: Net present value (NPV) is a measure of the variation between present worth the of cash inflows and…
Q: 4. Andre's Bakery has sales of $100,000 with costs of $50,000. Interest expense is $20,000 and…
A: Income Statement is a financial statement which shows the profit earned from a business. It is…
Q: A firm has sales of $4,740, costs of $2.540, Interest paid of $169, and depreciation of $473. The…
A: Cash coverage ratio can be calculated by using formula below.
Q: create a depreciation schedule to show the depreciation expenses for five years on a new piece of…
A: Here's the depreciation schedule for five years:YearBeginning book valuedepreciation expense (20% of…
Q: A borrower takes out a 30-year mortgage loan for $100,000with an interest rate of 6% plus 4 points.…
A: Effective annual interest rate is the percentage at which the amount of interest earned on an…
Q: Jagunco Inc has a required rate of return of 12%. This company does not expect to start paying…
A: When the company receives profits and distributes them among the shareholders. That share of profit…
Q: A couple is saving for retirement with three different accounts. The table below shows the current…
A: The concept of time value of money will be used here. As per this concept worth of money changes…
Q: Titan Mining Corporation has 7.5 milion shares of common stock outstanding, 250,000 shares of 4.2…
A: A company's average after-tax cost of capital from all sources, including common stock, preferred…
Q: 4000 3500 3000 2500 2000 1500 1000 500 0 ARITHMETICI $0.00 1 • Solve for the Present Value. • N =…
A: The PV of an investment refers to the combined value of the cash flows assuming that they are…
Q: The Flemings secured a bank loan of $280,000 to help finance the purchase of a house. The bank…
A: Loan amortization refers to the process of gradually paying off loan over time through regular,…
Q: Calculate the Present Value given the following: Jack invests $5,000 at the end of year 1, and…
A: We need to use present value formula below to calculate present valuePresent value =Future value/( 1…
Q: You buy 100 shares of UBER stock at $25/share; stock currently pays $1/share in annual dividends.…
A: Given information,Number of shares: Price per share: Dividend: Increase in stock price: Increase in…
Q: You have $81,455,75 in a brokerage account and you plan to deposit on additional $21,000 at the end…
A: Present value refers to the discounted value of all future cash flows with the defined interest rate…
Q: A 6% semiannual coupon bond has a par value of $1.000 and a yield-to-maturity of 10%. You purchase…
A: The problem case focuses on calculating the holding period return for the investors. The holding…
Q: Outline the benefits to be gained from the public listing on the Stock Market.
A: Publicly listing a company on the stock market, often referred to as an Initial Public Offering…
Q: The Mikado Company has a long-term debt ratio (i.e., the ratio of long-term debt to long-term debt…
A: Net fixed assets denote the immovable asset value that is shown after depreciation. In short, the…
Q: A “three against nine” FRA has an agreement rate of 4.94 percent. You believe six-month LIBOR in…
A: A Forward Rate Agreement (FRA) is a financial contract between two parties where they agree to…
Q: The Rogers Corporation has a gross profit of $916,000 and $387,000 in amortization expense. The…
A: Solution:Cash flow generated by a firm refers to the amount of cash generated by an entity from its…
Q: Measured in today's dollars, how much better is it to receive $2,411 in 4 years than to receive…
A: The PV of an investment refers to the combined value of the cash flows of the investment after they…
Q: Medavoy Company is considering a new project that complements its existing business. The machine…
A: Net present value is the difference between the present value of cash flow and initial investment of…
Q: Thorpe Mfg., Inc., is currently operating at only 81 percent of fixed asset capacity. Current sales…
A: Current operating capacity=81%Current sales=$740,000Fixed Assets=$600,000Projected…
Q: Assume that the average firm in your company's industry is expected to grow at a constant rate of 4%…
A: Required rate of return is the sum of the dividend yield and growth rate of company and is the…
Q: A company owns building worth £200,000, equipment worth £20,000 and Vehicle worth £30,000. At the…
A: Balance sheet shows the overall financial position of the company and it shows the assets on one…
Q: The balance sheet of Colton corporation shows long term debt of $50 million Shareholders equity of…
A: ROE is a profitability metric that we use in finance. It is basically the amount of net income…
Q: The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 9…
A: Bond price will be the aggregate of present value of all coupon payments and present value of face…
Q: Your firm has just issued five-year floating-rate notes denominated in U.S. dollars and indexed to…
A: Here,Six Month SOFR is 8.8%Interest Rate of Floating rate note is SOFR+0.70%Face Value of Note is…
Q: Goldman Sachs quotes bid-ask rates of $1.4001/€-$1.4003/€ and ¥104.30- 104.40/5. What would be…
A: In international market the currency may be converted into another currency via third currency due…
Q: Sherry Smart is buying a $350,000 home and will pay the mortgage monthly for 30 years. She has a…
A: Here,LoanAmount is $350,000Interest Rate (r) is 5.125%Time Period (n) is 30 yearsCompounding Period…
Q: Ingraham Inc. currently has $610,000 in accounts receivable, and its days sales outstanding (DSO) is…
A: Old Accounts Receivables = oar = $610,000Old Days Sales Outstanding = odso = 69 DaysNew Days Sales…
Q: Which method of deprecation results in a lower amount for depreciation each year? OA. Units of…
A: Depreciation is an accounting method used to allocate cost of a tangible asset over its useful life.…
Q: You hire Thomas to work for you for five years, and you agree to put away enough money as a lump sum…
A: The PV of an investment refers to the combined value of the cash flows of the investment assuming…
Q: Broward Manufacturing recently reported the following information: Net Income $324,000 ROA 10%…
A: Calculation of EBIT and equity:Formula used:
Q: Question a .Nervous Rollo puts $10,000 per year into a savings account from ages 25 to 60 earning…
A: The profit that an investor reaps after accounting for the inflation effect is known as the real…
Q: Although appealing to more refined tastes, art as a collectible has not always performed so…
A: The annual rate of return is a measure of the percentage increase or decrease in a financial…
Q: Peter Lynchpin wants to sell you an investment contract that pays equal $12,600 amounts at the end…
A: Annual payment (C) = $12,600Interest rate (r) = 0.07Period (n) = 18 YearsValue today = ?We will use…
Q: Suppose that a stock price is currently 68 dollars, and it is known that at the end of each of the…
A: Now6 Month1 Year96.2980.92 6865.55 65.5555.08 44.61
Q: Critically discuss the view that preference shares are best described as debt rather than equity.
A: Preference share is type of instrument which can claim higher dividend and They receive fix.…
Q: ket has an expected return of 9% per year with a standard deviation of 25%. You have designed a…
A: Probaility is very important in stock where uncertainty is very high probability show chance of…
Q: Alex Karev has taken out a $210,000 loan with an annual rate of 11 percent compounded monthly to pay…
A: Present value of annuity formula.PV = A * wherePV = Present value of annuityA = periodic paymentsr =…
Q: you work for a pharmaceutical comapny that developed a new drug. The patent on the drug will last 17…
A: Annuity is the series of equal cash payments over the period.
Q: A baseball player is offered a 5-year contract that pays him the following amounts: Year 1: $1.19…
A: Calculation of the present value of current contract:Formula used:
Q: Bond Coupon Rate (%) Number of Years to Maturity 7 5 IT 8 9 0 W X Y Z 7 4 10 Calculate the yield to…
A: Yield to maturity (YTM) is a financial indicator representing the total return an investor can…
Q: Patricia initially borrowed $6,700 from CIBC Bank at 2.9% compounded quarterly. After 4 years she…
A: The FV of an investment refers to the value of the investment at a particular future date assuming…
Q: Construct on amortization schedule for a $275,000,68% amual rate loan with 30 equal payments.
A: The amortization schedule refers to the breakdown of the payments made towards the loan into…
Q: Given the following cash flows for two mutually exclusive projects, and a required rate of return of…
A: Npv is also known as Net present value. It is a capital budgeting technquie. Which Help in decision…
Q: Question 2 Firm U is an all equity firm and has a market value of $100,000 and EBIT of $300,000.…
A: MM Approach refers to the situation where two firms exist and both have similar rate of return to…
Q: The real risk-free rate is 1.95%. Inflation is expected to be 2.95% this year, 4.25% next year, and…
A: Treasury notes are issued by the federal central bank and are quite risk The rate of return depends…
Q: Fantastic Footwear can invest in one of two different automated clicker cutters. The first, A, has a…
A: The IRR of a project is used to measure the project’s profitability. It equates the NPV to zero to…
Q: London purchased a piece of real estate last year for $81,800. The real estate is now worth…
A: Beginning value = $81,800Ending value = $104,600Total required return = 0.22 The formula for…
Q: A callable bond has a yield to call (YTC) of 5%, and a non-callable bond has a yield to maturity…
A: When a company provides a debt security bond with an additional feature that allows it to redeem it…
financial advisor evaluates four stocks for inclusion in an investor's portfolio. A orrelation matrix showing each stock's correlation with the other stocks is shown below Stock ALK CMN BTY DLE ALK 0.40 0.58 1.00 -0.25 BTY 0.40 1.00 0.16 -0.04 CMN -.25 .16 1.00 .37 DLE .58 .04 .37 1.00 f the goal is to reduce the investor's overall portfolio risk, which two stocks should the advisor recommend? a. ALK and DLE b. ALK and CMN c. BTY and DLE BTY and CM
Step by step
Solved in 3 steps
- Question 1 Refer to the following observations for stock A and the market portfolio in the table:Month Stock A Market portfolio1 0.30 0.122 0.24 0.083 -0.04 -0.104 0.10 -0.025 0.06 0.086 0.10 0.07 a) Calculate the main statistic measures to explain the relationship between stock A and the market portfolio:• The sample covariance between rate of return for the stock A and the market;• The sample Beta factor of stock A;• The sample correlation coefficient between the rates of return of the stock A and the marketConsider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?Utilizing the information below on 2 recently purchased stocks, compute the risk of the portfolio for the different levels of correlation between the 2 securities: Stock A B Expected Return 0.14 0.17 Std Dev of returns 0.11 0.11 Proportion invested 0.35 0.65 Correlation coefficient 1 0.4 0.1 0 -0.4 -1
- Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.6%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below. Reg A to E Reg F to G2…Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% Calculate covariance and coefficient of correlation between the returns of thestocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfoliocomprising of $45,000 invested in stock A and remaining amount in stock B.Calculate risk and return of your portfolio.Following is information for two stocks: Investment r σ Stock X 8% 10% Stock Y 24% 36% Which stock has the greater relative risk? (show the computation of the relative risk for X & Y.)
- Beta of a portfolio. The beta of four stocks-G, H, I, and J-are 0.42, 0.75, 1.19, and 1.65, respectively. What is the beta of a portfolio with the following weights in each asset: ? What is the beta of portfolio 1? (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Portfolio 1 Portfolio 2 Portfolio 3 Weight in Stock G 25% 30% 10% Weight in Stock H 25% 40% 20% Weight in Stock I 25% 20% 40% Weight in Stock J 25% 10% 30% - XA prospective investor obtained the following information on XY stock: Date Stock Prices ($) Dividends Paid 4/01/2020 61.25 2/02/2020 52.38 0.75 4/05/2020 64.88 0.75 30/06/2020 70.50 0.75 25/10/2020 75.75 0.75 30/12/2020 71.00 Calculate the time-weighted rate of return using both the Linking and Index methods.The following questions are based on the given information from table of probabilitydistributions of returns on investment individual shares and portfolio below:Table 3: Probability distributions of returns on investment for individual shares and portfolio. State ofEconomy Probabilityof theStates Return onShare A(rA) Return onShare B(rB) Return on Portfolio AB(rAB)1 0.20 15% -5% 5%2 0.20 -5% 15% 5%3 0.20 5% 25% 15%4 0.20 35% 5% 20%5 0.20 25% 35% 30% Given: By using the above information, demonstrate the rate of risk (variance and standarddeviation) for each of:(i) Share A (ii) Share B (iii) Portfolio A and B
- You are given the following information concerning a stock and the market Year 2017 2018 2019 2020 2021 2022 Returns Market 18% 11 12 -14 37 15 Correlation Beta a. Calculate the average return and standard deviation for the market and the stock. Note: Use Excel to complete the problem. Enter your answers as a percent rounded to 2 decimal places. Average return Standard deviation Stock 34% 27 3 -21 16 22 Market % Stock % % b. Calculate the correlation between the stock and the market, as well as the stock's beta. Note: Use Excel to complete the problem. Round your correlation answer to 2 decimal places and beta answer to 4 decimal places.A 1 Data for Two Stocks 2 3 B C D E F G H J K 2. Use the Excel file Data for Two Stocks to determine the following: a. Using EXCEL's Data Table Feature, create a one-way data table that determines the different means and standard deviations for portfolios consisting of combinations of Stock A and Stock B by varying the correlation coefficient value between Stock A and Stock B through the full range of possible correlation coefficient values. Use increments of 0.10 for the possible correlation coefficient values. b. Graph the correlation coefficients, the means, and the standard deviations of the portfolios from the one-way data table. Be sure to include a title for the graph and label the axes. c. Use Excel's Text Box Feature to explain how the portfolio means are affected by changing the correlation coefficient values. d. Use Excel's Text Box Feature to explain how the portfolio standard deviations are affected by changing the correlation coefficient values. 4 5 Expected return A B…You run a regression for a stock's return on a market index and find the following Excel output: Multiple R 0.35 R-Square 0.12 Adjusted R-Square 0.02 Standard Error 38.45 Observations 12 Coefficients Standard Error t-Stat p-Value Intercept 4.05 15.44 0.26 0.80 Market 1.32 0.97 1.36 0.10 The stock is ________ riskier than the typical stock