Write down the formulae for the return and expected return from time t = 0 and t = T on (a) a leveraged purchase, Klev, let w be the percent of the stock price purchased with own money, and r, the annual compounding interest rate you are able to borrow money. (b) a short position in stock, KSS, let c be the percent of the stock price reserved for collateral and re the annual compounding interest rate that the collateral attracts interest and r be the risk free interst rate you can invest in for non-collateral investments.

In the Gordon Growth (dividend discount) Model, the growth rate is assumed to be the required return on equity. a. proportional to O b. Blank O c. equal to O d. greater than O e. less than

Stock A has an expected return of 13.52 percent. Stock B has an expected return of 9.24 percent. Assuming the Capital Asset Pricing Model holds, and Stock A's beta is greater than Stock B's beta by 0.32, what is the expected market risk premium (in percent)? Answer to two decimals

Which of the following investments will experience the largest change in its market value as a result of changes in the level of interest rates (we are talking about the absolute value of the change, up or down)? Suppose interest rates go up or down by 50 basis points (0.5%). Rank the investments from 1 to 4 where a 1 is the most affected (largest absolute change in value) while a 4 is the least affected (smallest absolute change in value). A: $1 million invested in 3-month Treasury bills. 请选择~ B: $1 million invested in STRIPS (zero coupons) maturing in three years. |请选择 C: $1 million invested in a Treasury note maturing in three years. The note pays a 5% annual coupon. |请选择︾ D: $1 million invested in a Treasury note maturing in three years. The note pays a 10.0% annual coupon. |请选择

of stion According to MM Case II, if the expected return on assets decreases, what happens to the expected return on equity? Select one: Oa increases O b. remains constant Oc decreases O d. depends on the firm's capital structure Time le

A stock's internal rate of return (IRR) is the discount rate that cause the present value of future dividends and the price at which a stock is expected to be sold to equal the current price of the stock. O True O False C

according to capm the expected return on equity includes a reward for: a. market risk and specific risk b. Specific risk only c. Time value of money and market risk  d. Diversification and portfolio risk  e. Time value of money and specific risk

how much of your capital (what weight) would you invest in stock A to maximize your portfolio's expected return per unit risk (maximize the Sharpe Ratio)?

Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following. The risk-free rate of return, rf

Assume for parts (a) to (h) that the Capital Asset Pricing Model holds. The marketportfolio has an expected return of 5%. Stock A’s return has a market beta of 1.5, anexpected value of 7% and a standard deviation of 10%. Stock B’s return has amarket beta of 0.5 and a standard deviation of 20%. The correlation between stockA’s and stock B’s return is 0.5.Required:a) Explain the term ‘capital asset pricing model.’b) What is the risk-free rate?c) What is the expected return on stock B?d) Draw a graph with expected return on the y-axis and beta on the x-axis. Indicate the approximate position of the risk-free asset, the market portfolio and stocks A and B on this graph. Draw the line, which connects these four points.e) Explain the term ‘Securities Market Line’, and what is the slope of the SML for this economy?f) Consider a portfolio with a weight of 50% in stock A and 50% in stock B. What are its variance and expected return?g) Where would under-priced and over-priced securities plot on…