You are working with broker to determine a fixed income investment for your portfolio. You are seeking the highest yield for your portfolio. You are currently in the 10% state tax bracket and 35% federal tax bracket. Which investment provides you the highest yield? O In-state municipal bond with a vield of 4.15% O Treasury security with a viold of 5.25% O Not enough information O Corporate noted with a yield of 6.35%

You are working with broker to determine a fixed income investment for your portfolio. You are seeking the highest yield for your portfolio. You are currently in the 10% state tax bracket and 35% federal tax bracket. Which investment provides you the highest yield? O In-state municipal bond with a vield of 4.15% O Treasury security with a viold of 5.25% O Not enough information O Corporate noted with a yield of 6.35%

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

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A. You are analyzing the price/book value ratios for seven firms in the hospitality industry, relative to returns on equity and required rates of return. The treasury bond rate is 6% and the market premium is 3%. The data on the companies are the following: Company P/BV ROE Beta A 0.50 9.0% 0.75 1.10 8.5% 0.80 1.20 7.0% 1.30 0.65 12.5% 0.70 1.50 16.0% 0.85 0.90 10.0% 1.40 1.00 18.5% 0.85 i. ii. B C D E F G Compute the average P/BV ratio, return on equity, and beta for the industry. Based upon these averages, is the hospitality industry under or overvalued according to book values assuming that the industry overall is in stable growth?
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With reference to the information given above, Discuss the relationship between risk and return of the individual securities. Demonstrate the meaning and advantages of diversification by constructing a portfolio consisting of equal investments in the High-Tech Co. and the Counter- Cyclical Co. Explain your idea and show your work clearly. Perform calculations or quantitative analyses to support your answers where necessary.
Solve for CDL’s current cost of equity and weighted average cost of capital. Show all relevant workings.
↑ Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.50%, the company's credit risk premium is 4.50%, the domestic beta is estimated at 1.06, the international beta is estimated at 0.75, and the company's capital structure is now 25% debt. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.30% and the company's effective tax rate is 35% Calculate both the CAPM and ICAPM weighted average costs of capital for the following equity risk premium estimates 8.10% b. 7.00% 6.5.00% d. 3.90% ++ a. Using the domestic CAPM, what is Ganado's weighted average cost of capital of the fom's equity risk premium is 10% (Round to two decimal places) tude 1.1.... oline me
A university endowment fund has sought your advice on its fixed-income portfolio strategy. The characteristics of the portfolio's current holdings are listed below: Credit Maturity Coupon Modified Bond Rating (yrs.) Rate (%) Duration Convexity U.S. Govt. 3 2.724 9.9 A1 10 6.204 56.2 Aa2 5 3.704 18.7 Agency 7 4.798 32.1 Aa3 12 11.029 128.9 A B C D E Market Value of Position $34,000 34,000 34,000 34,000 34,000 $170,000 a. Calculate the modified duration for this portfolio (i.e., Mod Dp). Do not round intermediate calculations. Round your answer to three decimal places. years 0 10 12 11 0 b. Suppose you learn that the implied sensitivity (i.e., modified duration) of the endowment's liabilities is about 6.70 years. Identify whether the bond portfolio is: (1) immunized against interest rate risk, (2) exposed to net price risk, or (3) exposed to net reinvestment risk. The portfolio's duration is -Select- the liability's duration, portfolio is -Select-
What is the required rate of return of the portfolio held by Bulldogs Inc. if the nominal rate of the short-term government issued security is 2.25% and the overall market risk premium is 3.50%? a. 2.50% b. 7.50% c. 6.50% d. 1.50%
Suppose Rosa is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B C D E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 2.00 4.50 7.00 9.50 12.00 If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a Sell some of her bonds and use the proceeds to purchase stocks Accept more risk Standard Deviation of Portfolio Return (Risk) (Percent) 0 5 10 15 20 Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 4.5% to 9.5%. In order to do she must do which of the following? Check all that apply. Sell…
Based on the following numbers, calculate the firm’s WACC, explaining in detail each step in your calculations and the formulas that you are using. You may find it useful to complete this task in Excel and include the Excel table in your response. Cost of debt (averaging over all the forms of debt used): 12%. Risk-free rate on Treasury Bonds: 5%. Expected return on the domestic portfolio: 9%. Effective tax rate: 20%. Share of debt in optimal capital structure: 65%. Share of equity in optimal capital structure: 35%. Beta: 1.2
2) Consider the decision to purchase either a 7-year corporate bond or a 7-year municipal bond. The corporate bond is a 14% annual coupon bond with a par value of $1,000. It is currently yielding 12%, The municipal bond has an 9% annual coupon and a par value of $1,000. It is currently yielding 8%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 30%.
1. What are some comparative advantages of investing in the following? a) Unit investment trusts. b) Open-end mutual funds. c) Individual stocks and bonds that you choose for yourself. 2. You are considering two alternative two-year investments: You can invest in a risky asset with a positive risk premium and returns in each of the two years that will be identically distributed and uncorrelated, or you can invest in the risky asset for only one year and then invest the proceeds in a risk-free asset. Which of the following statements about the first investment alternative (compared with the second) are true? a) Its two-year risk premium is the same as the second alternative. b) c) d) e) The standard deviation of its two-year return is the same.Its annualized standard deviation is lower.Its Sharpe ratio is higher.It is relatively more attractive to investors who have lower degrees of risk aversion. 3. Tabulate and draw the investment opportunity set of the two…
You are considering buying stock in the following two banks. Each of the banks has assets that are solely long-term corporate bonds. Bank One is financed by 10% equity and 90% deposits. Bank Two is financed by 25% equity and 75% deposits. Which of the following scenarios would lead to the best outcome for Bank One relative to Bank Two? Higher inflation A recession Improving corporate credit ratings

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