Chapter 5: Introduction to Risk, Return, and the

1. How are Mortensen’s estimates of Midland’s cost of capital used? How, if at all, should these anticipated uses affect the calculations?

16. If the nominal interest rate on an account is 1% and the inflation rate is 2%, the real interest rate is:

(b) Coupon and principal of the Regular Treasury bonds are fixed, therefore if the inflation rate increases in the forecasting future, investor will receive the same amount of coupon and principal with less real value and purchasing power.

If GDP is increasing by 3% per year how long will it take GDP to double?

As economic growth increases moderately in 2014, the rate of inflation is expected to remain below 2 percent. The price of goods in the country will continue to be restricted by global competition and use of production capacities that are relatively low as compared to historical averages. In addition, the inflation rate will remain below 2 percent because of decrease in energy prices and small increase in the prices of food. Nonetheless, while energy prices continue to reduce this year, the percentage of the decrease will be less while food prices may regain normal rate of growth.

Looking at the Targets pro forma numbers we will see an increase of 11.4% within the next

4. How does your portfolio change if the risk-free rate goes down to 5% from the current

A growth rate of 2% in price is not unreasonable as the price to consumers had grown by 1.7% annually between 2003 and 2007. This growth still provides them with ample profit margins. In addition income is expected to increase by approximately 8%.

(5 points) In a world with no frictions (i.e., taxes, etc.), having debt is always better because it increases the value of the firm/projet.

the same sum on a false hunch regarding an AIDS cure, he or she would

4.14 On January 1, 1994, the annual inflation rates in the U.S. and Italy were expected to be 4% and 7%, respectively. If the current spot rate on that day was $1 = L2,000, then the expected spot rate for the lira in three years was

Randolph Corporation is a multidivisional company. Due to frictions among the divisions, Randolph’s stock has not performed according to expectations. In order to improve Randolph’s financial situation and position among its competitors, a number of questions need to be answered. We will discuss these questions separately below.

“First, it neglects the fact that those who benefit may not be the same as those who pay the costs.

So the investor will invest 32.58860806% of the investment budget in the risky asset and 67.41139194% in the risk-free asset.

The operations on a FPSO encounters many hazards or risk to personnel and the environment. Production facilities on the FPSO increases the risk associated with many marine incident.