You are watching: You own a portfolio equally invested in a risk-free asset and two stocks
2. The principle that an investment need to be accepted if the difference between the investment\"s industry value and its price is positive and also rejected if the distinction is an unfavorable is described as the: A. Average bookkeeping return rule.B. Interior rate of return rule.C. Profitability table of contents rule.D. Discounted payback rule.E. Net current value rule.
3. A traditional cash circulation is identified as a series of cash flows where: A. The full of the cash flows is positive.B. Every one of the cash flows space positive.C. The sum of the cash flows is equal to zero.D. The current value of the cash flows is same to zero.E. Just the early cash flow is negative.
4. The size of time required to recover the early stage investment when time worth of money is thought about is dubbed the: A. Discounted payback period.B. Average accounting return period.C. Discounted net existing value period.D. Payback period.E. Interior time interval.
5. Ranking conflicts can happen if one depends on IRR rather of NPV when: A. The an initial cash flow is negative and the staying cash flows space positive.B. Tasks are independent of one another.C. A task has an ext than one NPV.D. Projects are support exclusive.E. The profitability table of contents is greater than one.
6. Generally, the most challenging part of utilizing the net existing value ide is: A. Determining the early cash outflow compelled to begin a project.B. Computer the net present value when the discount rate and cash flows room determined.C. Determining whether the discount rate offered is greater or reduced than the inner rate the return.D. Estimating the future cash flows given the initial invest in the project.E. Making the accept/reject decision when the net present value is computed
7. The theory that industry prices reflect every publicly-available info is called efficiency in the: A. Open up form.B. Strong form.C. Semi-strong form.D. Weak form.E. Secure form.
8. The hypothesis that industry prices reflect all historic price information is dubbed efficiency in the: A. Open form.B. Strong form.C. Semi-strong form.D. Weak form.E. Stable form.
9. Over the past 50 years, which of the adhering to investments has been thought about the most risky? A. Canadian common stocksB. U.S. Typical stocksC. Treasury billsD. Long bondsE. Canadian tiny stocks
10. I m sorry of the following is true about risk and also return? A. Riskier heritage will, ~ above average, earn lower returns.B. The reward because that bearing threat is known as the typical deviation.C. Based on historical data, over there is no reward for bearing risk.D. Boost in the threat of an investment will an outcome in a diminished risk premium.E. In general, the higher the danger the greater the expected return
How is the modified inner rate of return various from the IRR? as soon as would it be wanted to the IRR? (4 points)
The IRR modifies interim cash flows that room reinvested ago into the project. The assumes that they are reinvested in ~ a pre-specified rate, such as the normal return or also the risk totally free rate. The IRR preeminence implicitly assumes the all interim cash flows space reinvested at the interior rate that return. This is yes for projects with (1) conventional cash operation (where the only an adverse cash circulation is the initial investment) and (23) in cases where the IRR is somewhat near the discount rate and also not much away from the return ~ above other company projects.
x yr1 8% yr2 21 yr3 17 yr4 -16 yr5 9 calculation Arithmetic avg return(equal come mean), variance, and standard deviation for x and also y.
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(.08+.21+.17+-.16+.09)/5=7.8% x(x-μ )²(.08-.078)²=.000004(.21-.078)²=.017424(.17-.078)²=.008464(-.16-.078)²=.056644(.09-.078)²=.000144 =.08272 Var.=.08272/(5-1)=.02068 Std Dev.=√.02068=14.38%
Calculating Returns and also VaribilityYou\"ve observed the adhering to returns on Regina Comp\"s stock end the past five yrs: 7%, -12%,11%, 38%, and also 14%a) What is the arithmetic Avg end 5yrs?b)What is the variance the Returns over 5yrs?Std, Dev?
(.07-.12+.11+.38+.14)/5=11.6%=Arithmetic((.07-.116)²+(-.12-.116)²+(.11-.116)²+(.38-.116)²+(.14-.116)²)/(5-1) = ό²=.127688ό=√.127688=.3373=33.73%
Calculating investment portfolio BetasYou own a portfolio same invested in a risk complimentary asset and two stocks. If one of the stocks has a beta that 1.27 and also the complete portfolio is equally as risky as the market, what need to the beta be for the various other stock in her portfolio?
The beta of a portfolio is the sum of the load of every asset time the beta of each asset. If the portfolio is as risky as the industry it must have actually the same beta together the market. Due to the fact that the beta of the market is one, we know the beta the our portfolio is one. We additionally need to remember that the beta that the risk-free heritage is zero. It has to be zero because the asset has actually no risk. Setting up the equation for the beta of ours portfolio, we get:βp = 1.0 = 1/3(0) + 1/3(1.27) + 1/3(βX)1/3βp=1-1/3(1.27)βp=1.73
Using CAPM - A stock has a beta of 1.05, the expected return top top the sector is 10%, and the risk cost-free rate is 3.8%. What need to be the expected return top top this stock be?
CAPM says the relationship in between the risk of one asset and also its meant return. CAPM is: E(Ri)=Rf +
Using CAPM- A stock has an intended return that 10.2%, the risk complimentary rate is 4.5%, and also the sector risk premium is 7.5%. What need to the beta the this share be?
We are offered the worths for the CAPM other than for the β of the stock. We have to substitute these values into the CAPM, and solve because that the β that the stock. One crucial thing we have to realize is that we are given the industry risk premium. The industry risk premium is the intended return that the industry minus the risk-free rate. We need to be mindful not to usage this value as the meant return the the market. Utilizing the CAPM, we find:E(Ri) = .102 = .045+ .075βiβi(.075)=.102- .045βi=.76
Calculating supposed Return SS. Of Econ. Prob of S. That Econ investment portfolio if s. OccursRecession .30 -.14Boom .70 .22
The expected return the an legacy is the sum of the probability of every return developing times the probability of the return occurring. So, the meant return that the legacy is:E(R) = .3(-.14) + .7(.22) = .112 or 11.2%
Taxes and also WACC IS Co. Has a target debt-equity ratio of .45. It\"s cost of same is 13% and also its cost of blame is 6%. If the Tax rate is 35%, what is the suppliers WACC?
Here we must use the debt-equity ratio to calculation the WACC. Doing so, we find: WACC = (1/1.45)x.13 + .06(.45/1.45)(1 - .35) = .101 or 10.1%
Calculating expense of desired Stock- bank has an worry of wanted stock through a $4.25 proclaimed dividend that simply sold because that $92 every share. What is the financial institutions cost of desired stock?
a.He should look at the weighted average flotation cost, not just the debt cost.b. The weighted average floatation price is the weighted typical of the floatation costs for debt and also equity, so:fT= we x Fe+Wd x FdfT = .08(.1/1.6) + .05(.6/1.6) = 6.9%c. The full cost the the tools including floatation prices is:Amount raised(1 - .0658) = $15,000,000Amount elevated = $15,000,000/(1 - .0658) = $16,056,338Even if the specific funds space actually being raised totally from debt, the flotation costs, and hence true investment cost, must be valued as if the firm\"s target resources structure is used.
Online Learning center to companion Essentials the Investments8th EditionAlan J. Marcus, Alex Kane, Zvi Bodie
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