You are watching: You own a portfolio equally invested in a risk-free asset and two stocks
2. The principle that an investment must be accepted if the difference between the investment"s sector worth and also its expense is positive and also rejected if the distinction is negative is described as the: A. Mean accountancy return ascendancy.B. Internal rate of rerevolve dominance.C. Profitability index preeminence.D. Discounted payago ascendancy.E. Net present value preeminence.
3. A typical cash flow is defined as a collection of cash flows where: A. The complete of the cash flows is positive.B. All of the cash flows are positive.C. The amount of the cash flows is equal to zero.D. The current value of the cash flows is equal to zero.E. Only the initial cash flow is negative.
4. The length of time essential to recover the initial investment once time worth of money is taken into consideration is called the: A. Discounted payago duration.B. Median audit rerevolve period.C. Discounted net present value duration.D. Payearlier period.E. Internal time interval.
5. Ranking disputes can arise if one depends on IRR instead of NPV when: A. The initially cash circulation is negative and also the continuing to be cash flows are positive.B. Projects are independent of one an additional.C. A job has actually more than one NPV.D. Projects are mutually exclusive.E. The profitcapability index is higher than one.
6. Typically, the the majority of challenging part of using the net present worth concept is: A. Determining the initial cash outcirculation required to start a task.B. Computing the net existing value as soon as the discount rate and cash flows are determined.C. Determining whether the discount rate used is better or lower than the internal price of rerevolve.D. Estimating the future cash flows offered the initial investment in the project.E. Making the accept/disapprove decision as soon as the net present value is computed
7. The hypothesis that industry prices reflect all publicly-easily accessible indevelopment is referred to as effectiveness in the: A. Open create.B. Strong create.C. Semi-strong develop.D. Weak form.E. Stable develop.
8. The hypothesis that market prices reflect all historical price indevelopment is dubbed performance in the: A. Open create.B. Strong create.C. Semi-strong create.D. Weak develop.E. Stable create.
9. Over the previous 50 years, which of the complying with investments has actually been taken into consideration the most risky? A. Canadian common stocksB. U.S. common stocksC. Treasury billsD. Long bondsE. Canadian little stocks
10. Which of the adhering to is true about danger and return? A. Riskier assets will, on average, earn lower retransforms.B. The reward for bearing danger is well-known as the conventional deviation.C. Based on historical data, tright here is no reward for bearing hazard.D. An boost in the hazard of an investment will certainly bring about a diminished risk premium.E. In basic, the better the threat the better the expected return
How is the modified internal rate of return different from the IRR? When would certainly it be preferred to the IRR? (4 points)
The IRR modifies interim cash flows that are reinvested back right into the job. It assumes that they are reinvested at a pre-mentioned price, such as the normal rerevolve or also the hazard totally free rate. The IRR dominion implicitly assumes that all interim cash flows are reinvested at the interior rate of rerotate. This is OK for projects through (1) typical cash flows (wright here the just negative cash flow is the initial investment) and (23) in cases wbelow the IRR is somewhat near the discount rate and not much ameans from the return on other firm jobs.
x yr1 8% yr2 21 yr3 17 yr4 -16 yr5 9 Calculate Arithmetic avg return(equal to mean), variance, and also traditional 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 Retransforms and also VaribilityYou"ve observed the complying with retransforms on Regina Comp"s stock over the previous five yrs: 7%, -12%,11%, 38%, and also 14%a) What is the arithmetic Avg over 5yrs?b)What is the variance of 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 Portfolio BetasYou very own a portfolio equally invested in a danger cost-free ascollection and two stocks. If among the stocks has a beta of 1.27 and also the total portfolio is equally as risky as the industry, what must the beta be for the various other stock in your portfolio?
The beta of a portfolio is the amount of the weight of each ascollection times the beta of each ascollection. If the portfolio is as risky as the market it have to have actually the exact same beta as the market. Since the beta of the sector is one, we recognize the beta of our portfolio is one. We likewise should remember that the beta of the risk-free asset is zero. It hregarding be zero since the asset has no risk. Setting up the equation for the beta of our 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 supposed return on the industry is 10%, and the threat cost-free price is 3.8%. What must be the meant rerevolve on this stock be?
CAPM claims the relationship in between the hazard of an asset and its expected return. CAPM is: E(Ri)=Rf +
Using CAPM- A stock has actually an expected return of 10.2%, the risk totally free rate is 4.5%, and the market danger premium is 7.5%. What should the beta of this stock be?
We are offered the worths for the CAPM except for the β of the stock. We have to substitute these worths into the CAPM, and also solve for the β of the stock. One necessary thing we have to realize is that we are given the industry threat premium. The sector risk premium is the intended rerevolve of the market minus the risk-complimentary price. We have to be careful not to use this value as the intended rerevolve of the industry. Using the CAPM, we find:E(Ri) = .102 = .045+ .075βiβi(.075)=.102- .045βi=.76
Calculating Expected Rerotate SS. of Econ. Prob of S. of Econ Portfolio if s. occursRecession .30 -.14Boom .70 .22
The expected return of an asset is the sum of the probcapability of each return occurring times the probability of that rerevolve developing. So, the expected rerevolve of the ascollection is:E(R) = .3(-.14) + .7(.22) = .112 or 11.2%
Taxes and WACC IS Co. has a taracquire debt-equity proportion of .45. It"s cost of equity is 13% and its expense of debt is 6%. If the Tax price is 35%, what is the service providers WACC?
Here we have to usage the debt-equity proportion to calculate 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 Preferred Stock- Bank has actually an concern of preferred stock through a $4.25 declared dividend that just marketed for $92 per share. What is the banks expense of desired stock?
a.He should look at the weighted average flotation expense, not just the debt price.b. The weighted average floatation expense is the weighted average of the floatation prices for debt and equity, so:fT= We x Fe+Wd x FdfT = .08(.1/1.6) + .05(.6/1.6) = 6.9%c. The full expense of the devices including floatation costs is:Amount raised(1 - .0658) = $15,000,000Amount elevated = $15,000,000/(1 - .0658) = $16,056,338Even if the certain funds are actually being raised completely from debt, the flotation prices, and therefore true investment expense, should be valued as if the firm"s targain funding structure is offered.
Online Learning Center to acagency Essentials of Investments8th EditionAlan J. Marcus, Alex Kane, Zvi Bodie
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