Chapter 6 TemplatesPage 184The following figure shows plots of monthly rates of return and the stock market for two stocks. (LO 6-5)a. Which stock is riskier to an investor currently holding a diversified portfolio of common stock?b. Which stock is riskier to an undiversified investor who puts all of his funds in only one of these stocks?Templates and spreadsheets are available in Connectmheducation.com/parser php?secload36.f&fake&print

Diversification is the strategy to minimize loss by invest money in several securities through…

Page 184 The following figure shows plots of monthly rates of return and the stock market for two stocks. (LO 6-5) a. Which stock is riskier to an investor currently holding a diversified portfolio of common stock? . Which stock is riskier to an undiversified investor who puts all of his funds in only one of these stocks? emplates and spreadsheets are available in Connect education.com/parser.php?secload=6.f&fake&print

Page 184 The following figure shows plots of monthly rates of return and the stock market for two stocks. (LO 6-5) a. Which stock is riskier to an investor currently holding a diversified portfolio of common stock? . Which stock is riskier to an undiversified investor who puts all of his funds in only one of these stocks? emplates and spreadsheets are available in Connect education.com/parser.php?secload=6.f&fake&print

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A10.
You own a 10-acre blueberry farm. You could farm the land yourself or rent it out for $7,000 per year. Another option is to sell the land this year at its current market price of $80,000. The price of the land next year will be $78,000. If you sell it, your group has an investment opportunity from which you expect to make a return of 6 percent per year. What is the opportunity cost to you of using the land to grow blueberries for a year? O a. $2,000 O b. $4,800 OC. $5,000 d. $9,800
Imagine you are the owner of a downtown Laredo building that you lease out for a yearly amount of $ 45,000 over a span of five years. Assume that the explicit expenses for maintaining the building are $ 20,000, and an additional implicit cost of $15,000 exists. All earnings and costs occur at the conclusion of each year. Suppose the interest rate is 7.5 percent, Determine the present value for both the stream of: (i) your accounting profits. Show your steps. (ii) economic profits. Show your steps
The following table provides the annual profits of two startup tech firms along with their present value of profits calculated at an interest rate of 5 percent. Which firm would be your recommendation for an acquisition? Explain. Year Firm AProfits Firm BProfits 1 $1,000,000 $5,000,000 2 $1,200,000 $2,000,000 3 $1,400,000 ($800,000) 4 $1,500,000 $500,000 5 $1,600,000 ($100,000) PV $5,737,885 $6,217,892
Economics Annual premiums are paid into a 3 year unit linked endowment policy where 98% of each premium is allocated to units in a fund that carries a 3% bid- offer spread and charges management fees of 0.75% of assets at the end of each policy year. The policy has a death benefit of the bid value of units payable at the end of the year of death subject to a minimum of £12,500. The survival benefit is the bid value of units at the end of the term. The life assurance company estimates that expenses are £95 per policy per year. (a) Produce projected revenue accounts for each year of a policy with an annual premium of £5,000 assuming the annual rate of mortality is 0.00498, an investment return of 6.9% per annum and an interest rate on cash balances of 3% per annum. (b) Does the life assurance company meet its internal profit margin objective of 5% on this policy if its risk discount rate is 5.5% per annum?
Appledale Dairy is considering upgrading an old ice-cream maker. Upgrading is available at two levels: moderate and extensive. Moderate upgrading costs $6,900 now and yields annual savings of $3,600 in the first year, $3,250 in the second year, $2,900 in the third year, and so on. Extensive upgrading costs $10,550 and saves $7,700 in the first year. The savings then decrease by 20 percent each year thereafter. If the upgraded ice-cream maker will last for seven years, which upgrading option is better? Use a present worth comparison. Appledale's MARR is 5 percent. Click the icon to view the table of compound interest factors for discrete compounding periods when i = 5%. The present worth of the moderate upgrading option is $ and the present worth of the extensive upgrading option is $ The V upgrading option is better. (Round to the nearest cent as needed.)
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Scenario: Wang's Wicker Furniture Store Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. In his first year, his revenue was $150,000. Use Scenario: Wang's Wicker Furniture Store. The accounting profit of Wang's Wicker Furniture Store is: a. $30,000. b.-$30,000. O c. $60,000. O d. $200,000.
As a manager of your company, you are considering to go for a project, with an initial outlay of $200,000. The project has a life of three years and yields (year-end) cash inflows of $ 100,000 in year-1, $150,000 in year-2 and $200,000 in year 3. What is the net present value of the project if the interest rate is 10 percent? Show your steps. Should you recommend to go for the project? Explain in details.
2. You purchase special equipment that reduces defects by $10,000 per year on an item. This item is sold on contract for the next five years. After the contract expires, the special equipment will save approximately $2,000 per year for five years. You assume that the machine has no market value at the end of ten years. How much can you afford to pay for this equipment now if you require a 20% annual return on your investment?
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