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Make sure to demonstrate a strong understanding of the concept of beta and the risk/return trade off.
Calculate the stock's current yield, capital-gains yield, and the return. Show your work for three separate calculations.
How much will Sarah (or any diversified investor) require/expect to earn on each stock (given its riskiness) in order to hold it?
What would be Cyclone's cost of equity if it changed its capital structure to 50% debt and 50% equity?
What are the major valuation methods for financial assets? What projection should you make and what variables should you estimate?
What are some reasons that capital asset acquisition decisions receive particular attention?
For each of the scenarios below, explain whether or not it represents a diversifiable or an undiversifiable risk.
You have been provided the following data about the securities of tree firms, the market portfolio, and risk-free:
Now that you have read about the CAPM, would you ever use it to make personal investment decisions?
Calculate Sharpe ratio, Treynor ratio, Jensen's alpha, information ratio, and R-squared for both funds and determine which is the best choice for a portfolio.
What should be the average beta of the new stocks added to the portfolio?
Taggart Inc.'s stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return. What is the firm's expected rate of return?
Calculate the the weighted average cost of capital, current rate of return on a risk free asset, beta, and required return on market and interest rate
Calculate the operating breakeven point in units. Use the degree of operating leverage (DOL) formula to calculate DOL.
Write an essay regarding the utility of the CAPM.
Many companies engage in "market skimming," offering new products at whatever price the market will bear
Based on financial statements of Internal Gaming Technology and their background answer the questions below:
Invest the after tax proceeds in certificates of deposit yielding 6% interest, Sara's cost of the asset is $25,000. Why would Sara prefer the installment sale?
What are liquidity ratios? Why are they important? How may an investor use liquidity ratios in making investment decisions?
What are the covariance and the correlation between the returns of the two stocks?
Compute a fair rate of return for Intel common stock, which has a 1.2 beta. The risk-free rate is 6 percent.
MFI Inc. has a beta of .86. If the expected market return is 11.5 percent and the risk-free is 7.5 percent, which is the appropriate return of MFI (using CAPM)
Use your findings in parts (1) and (2) to evaluate and discuss the return and risk associated with each stock. Which stock appears to be preferable? Explain.
Determine the optimal risky portfolio if the risk-free rate is 3%.
Justify the current market price of the organization's (Walmart) debt, if any, and equity using various capital valuation models.