Consider a simple financial market where only two firms are traded, say firm A and firm B, with capitalization given by $200 mil and $300 mil. Consider two investors, investor 1 and 2, with total wealth $100, each. Investor 1 decides to deposit $40 of his wealth in the risk free asset. Investor 2 decides instead to invest $60 in the risk-free asset. According to the Two Funds Separation theorem, how much each investor should invest in shares of firm A and shares of firm B?
Q: Chris, a good buddy or yours, is learning about personal automobile policies. He just received his…
A: Chris is referring to Uninsured/Underinsured Motorist Coverage, and whether he needs it or not…
Q: How are interest rates determined in the Caribbean and do Caribbean stock markets show zero signs of…
A: The stock market, also known as the equity market, is a platform where publicly traded companies can…
Q: Ella Funt has been saving $5000 annually for the last 20 years and her account now totals $286,375.…
A: Interest rate Ella's account been earning is calculated in excel using Rate function with number of…
Q: If the credit quality of the issuer falls sharply, what is your main concern? a.The share price.…
A: Credit quality refers to the assessment of the creditworthiness of an individual or entity,…
Q: rue or false: Households who borrow later in a housing market cycle will, holding other variables…
A: Step 1 The risk that a lender assumes in the event that a borrower won't be able to make the…
Q: In the article “Incorporating Country Risk in the Valuation of offshore Projects”, Lessard…
A: The viability of offshore projects might be affected by the complexity and numerous hazards they…
Q: 1. What will happen to house prices if banks stop giving mortgages? (B) go down; (C) stay unchanged;…
A: Any sum borrowed to meet the personal or business funding requirements is regarded as a mortgage.…
Q: The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at…
A:
Q: What is the modified duration of a semiannual-pay 10.3 percent coupon bond with 11 years to maturity…
A: The modified duration of a bond is used to find out the change in the price of the bond for every…
Q: On May 1, 2004, we requested a loan from Banamex for the amount of $250,000.00, payable in 16…
A: Here, Loan Amount is $250,000.00 Time Period of Loan is 16 months Interest Rate is 1.5% per month
Q: stock price is currently $100. you buy a put option with a strike price of $85 and premium $2.50…
A: Strike price = $85 Premium = $2.50 To break even on the put option strategy, the stock price should…
Q: American Express and other credit card issuers must by law print the Annual Percentage Rate (APR) on…
A: Annual percentage rate (APR) is the rate that is charged on the credit card over a duration of a…
Q: You are considering investing in one of two projects, which have the following returns and…
A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: manufactures and sells personal computers is an all- equity firm with 100,000 shares outstanding,…
A: In order to calculate the earning per share you considered the total number of outstanding share in…
Q: A total of four students belong to all three teams, the baseball, basketball and football team.…
A: Let's assume that the number of players on the baseball team is B, the number of players on the…
Q: Scenario: Imagine you have recently inherited $20,000 and you want to save it. You can put it in a…
A: A decision is a choice between two or more alternatives, where the outcome of the choice is not…
Q: You took out a loan that must be repaid with level payments at the end of each year. The loan has an…
A: Since you have posted multiple questions, we will provide the solution only to the first question as…
Q: Find the monthly payment for the 15- year option.
A: Data given: Price of home=$170,000 Down payment=15% n=15 years Rate=7.5% Required: Find the…
Q: Abraham finds the juicer he wants to buy at two different stores. The discount store regularly…
A: The discount refers to the deduction made in the price of a commodity. It is used by sellers to…
Q: If a company has $1 million to spend on a new strategy and is considering market development versus…
A: Market development involves expanding the company's market by identifying new customer segments or…
Q: Impossible Corporation just paid a dividend of $2.10 per share. The dividends are expected to grow…
A: In the given case, we have provided the last paid dividend per share , the growth rate for the next…
Q: Rishi Sunak Manufacturing Pte. Ltd. is preparing its budget for next year. The company estimates…
A: Raw materials of December = $240,000 Raw materials of November = $280,000 Raw materials of October…
Q: Hank has a $30,000.00 GIC which is locked in for the next 2 months at which time he can access his…
A: This scenario involves a person named Hank who has a locked-in GIC for the next 2 months and an…
Q: MF Corp. has an ROE of 14% and a plowback ratio of 60%. The market capitalization rate is 14%. a. If…
A: Step 1 The total dollar market value of a company's outstanding shares of stock is referred to as…
Q: What is the incremental borrowing cost for the following table? Alternative 1 @ 6% for 25 years III…
A: We can use the excel functions (IRR) for solving this question: ** NOTE- Some columns in between…
Q: A certificate of deposit usually has: Multiple Choice O O a penalty for early withdrawal of funds.…
A: A Certificate of deposit (CD) is a type of savings account that typically has a set time period,…
Q: The Allens are considering buying a house and need to figure out what they can afford and what a…
A: Back-end Debt to Income ratio computes all monthly payments as a % of the gross monthly income. We…
Q: The yield to maturity (YTM on 1-year zero-coupon bonds is 7% and the YTM on 2-year zeros is 8%. The…
A: Given: YTM on 1-year zero coupon bond = 7% YTM on 2-year zero coupon bond = 8% YTM on coupon bond…
Q: Returns earned over a given time period are called realized returns. Historical data on realized…
A: Returns from trading an asset can be profits or losses. The return that one receives on an…
Q: Your friend was supposed to repay you $250 1 month ago and $125 15 days ago. You instead agree to…
A: The size of equal payments refers to the amount of money that needs to be paid in regular intervals,…
Q: Emmanuel Macron has the following budgeted business transactions for the month of May 2020:…
A: Budgeted cash position = Starting bank balance + Total cash inflows - Total cash outflows…
Q: Intro BP has a bond outstanding with 15 years to maturity, a $1,000 par value, a coupon rate of…
A: Bonds are debt instruments issued by companies. Cost of debt, in case of bonds, is determined by…
Q: Which of the following statements is not true? Budgeted sales volumes and terms of trade…
A: An effective budgeting process is essential for any business to ensure its financial health. The…
Q: Marketing thought has been shifting from exchange of physical goods to service exchange. When…
A: Physical goods refer to tangible products that can be handled physically, that is, their touch can…
Q: Common Stock C has a standard deviation of return of 10 percent. Common Stock D has a standard…
A: Portfolio variance and standard deviation with two security With standard deviation of security 1…
Q: First National Bank charges 13.4 percent compounded monthly on its business loans. First United Bank…
A: The effective annual rate (EAR) is the annual interest rate that takes into account the effect of…
Q: A new investment opportunity for you is an annuity that pays $650 at the beginning of each year for…
A: An annuity is a financial product that provides a series of regular payments to an individual over a…
Q: Don Garlits is a landscaper. He is considering the purchase of a new commercial lawn mower, either…
A: To compare the two alternatives, we need to calculate the EUAC (Equivalent Uniform Annual Cost) or…
Q: Alice keeps meaning to invest more in her RRSP, Her original plan was to invest $6000 eight months…
A: The concept of money's time value reveals that any sum of money is worth more today than what the…
Q: Critically explain the WACC result of Toyota. 2020=5,34 2021=2,7
A: WACC stands for the weighted average cost of capital and is a measure of the cost of financing a…
Q: Question 6 Which of the following is NOT an example of an invitation to treat? Select one…
A: Invitation to treat is a very important concept. It is the concept in contract law that creates an…
Q: Assume that we can estimate a project's cash flows as follows: n 0 1 234 4 5 Expected Flow E(An)…
A: NPV is the net current worth of cash flows that are expected to occur in the future. Both parts are…
Q: Ursala, Incorporated, has a target debt-equity ratio of .90. Its WACC is 8.2 percent, and the tax…
A: Debt Equity ratio = 0.90 WACC = 8.2% Tax rate = 22% WACC = (cost of equity * Weight of equity) +…
Q: (Related to Checkpoint 6.1) (Annuity payments) A firm borrows $20,000 from the bank at 13 percent…
A: Annual payment refers to an amount that is paid on yearly basis for the repayment of loan amount…
Q: Invesco Charter A famously advertises their superior performance relative to the S&P 500 over…
A: While Invesco Charter A may have had superior performance in the past, it is important to note that…
Q: 003) You want to buy a $170,000 home and plan to pay 20% down and got an interest rate of 4%. What…
A: A mortgage is a type of loan used to purchase a property or a home. The borrower (homebuyer) is…
Q: Which of the following statements about payback (payback period) is most correct? a. Payback…
A: Payback period is a financial metric that measures the length of time it takes for an investment to…
Q: You expect to receive a payout from a trust fund in 4 years. The payout will be for $13,600. You…
A: Number of years it will take for the account to be worth $22900 is calculated in excel below
Q: Problem 3: Compute the equivalent rate of (A+B+C+D+E) % compounded semi-annually to a rate…
A: A=1 B=5 C=7 D=6 E=8 Therefore (A+B+C+D+E)%=(1+5+7+6+8)% = 27% compounded semi-annually.
Q: Limited partners benefit from which of the primary advantages? Their responsibility for the firm's…
A: Limited partnership is a type of organizational structure where the two or more persons start a…
Need help.
Step by step
Solved in 3 steps
- Consider a mutual fund(ex. Contrafund) It has $10,000 in assets (stocks) and 250 shares are owned by people like you and I. Which one of the following is false?. The NAV = $40/share but will change if the market price of the stocks change If a new customer buys 1 share the NAV will change (up or down) If a new customer buys 1 share the PM will have more money to buy securities If an existing customer sells a share the NAV will not change When an existing customer sells their share(s), by law the Fund has to buy those shares1. 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…The Fourth Corp. is evaluating extra cash dividends versus share repurchases. In either case, $6,675 will be spent. Current earnings are $2.8 per share and the stock currently sells for $67 per share. There are 1,500 shares outstanding. Ignore taxes and any information asymmetry in the financial market. Which of the following is correct? Group of answer choices Shareholder wealth is the same regardless of which payout policy is chosen. Shareholder wealth will be lower if the firm repurchases shares because shares outstanding is reduced as a result of the repurchase. Shareholder wealth will be lower if the firm pays extra cash dividends because share price is lower. Shareholder wealth will be higher if the firm repurchases shares because repurchases can boost share price.
- Suppose you are 28 and married. You and your spouse file for income taxes jointly. You are in the 25% tax bracket. You are considering a few personal investment issues. Suppose you believe the security market is efficient in the weak form but not efficient in the semi-strong form. Based on your belief, you would consider all of the following strategies EXCEPT ____. a. Investing in an actively managed mutual fund specialized in following price trends of commodities (e.g., gold, copper, crude oil, wheat, etc.). b. Investing in an actively managed mutual fund specialized in picking small-size stocks. c. Investing in an actively managed mutual fund specialized in picking technologystocks. d. Investing in an actively managed mutual fund specialized in picking speculative-grade bonds (or junk bonds).Compared to mutual funds, hedge funds are usually subject to [MORE/LESS?] regulation. Suppose that Thompson Hedge Fund obtains and invests $3 of borrowed funds for every $1 of equity invested. In other words, it can invest $4 of assets for each $1 of equity. Also suppose that Thompson can achieve a 10% return on assets (ROA). Given this ROA, the return on Thompson’s equity investment is [?]%. Suppose that Thompson Hedge Fund obtains and invests $3 of borrowed funds for every $1 of equity invested. In other words, it can invest $4 of assets for each $1 of equity. However, suppose that Thompson suffers a 10% loss, or a -10% return on assets (ROA). Given this ROA, the return on Thompson’s equity investment is [?]%.You are allocating your wealth between two shares, GoldenClaw and Syldavian Industries. GoldenClaw has volatility 58.20%, while Syldavian Insustries has volatility 41.60%. The correlation beteween the two shares' returns is 0.56. What percentage of your wealth should you allocate to GoldenClaw to minimise your portfolio's volatility?
- Firms A and B are identical except for their capital structure. A carries no debt, whereas B carries £100m of debt on which it pays a 5% interest rate. Assume no taxes and perfect capital markets where investors and firms can lend and borrow at the same risk-free rate. The relevant numbers are provided in the following table (in £ m): Suppose now that an investor with a 5% stake in B would like to sell his shares and take a stake in A, but would like to keep his risk constant. How much does he need to borrow (in £m)? [Borrow] What fraction of A’s equity can he buy with the money raised from the sale of the 5% stake in B and his personal debt? [Astake] What is the after interests return from the investor’s position (in £m)? [AfterIntReturn] What is the profit from this arbitrage (in £m)? [Arbitrage_profit]XYZ is comparing two different capital structures. Plan I would result in 13,000 shares of stock and $130,500 in debt. Plan II would result in 10,000 shares of stock $243,600 in debt. The interest rate on the debt is 10%. a). Ignoring taxes, compare plans I and II to an all equity plan assuming that EBIT will be $56,000. The all equity plan will result in 16,000 shares of stock OUTSTANDING. Which of the 3 plans has the highest EPS? And which has the lowest? b). In part A, what are the break-even levels of EBIT for plan I compared to an all equity plan? What about for plan II I compared to an all equity plan? Is one higher than the other? Why (explain). c). Ignoring taxes, when will EPS be identical for plans I and II?Calculate the total cost in dollar proceeds and dollars total gain or loss in dollars and return on investment for the mutual fund investment. The offer price is the purchase price of the shares and the net asset value is the price at which the shares were later sold. Round your return on investment to one decimal place.?
- Calculate the total cost (in $), proceeds (in $), total gain (or loss) (in $), and return on investment for the mutual fund investment. The offer price is the purchase price of the shares, and the net asset value is the price at which the shares were later sold. (Round your return on investment to one decimal place.) Shares OfferPrice TotalCost Net AssetValue Proceeds Per ShareDividends Total Gain(or Loss) Return onInvestment% 500 $10.20 $ 5,100 $12.80 $ 6,400 $0.67 $ %A stock broker is required to keep $100,000 in low risk funds. He splits the money between a fund that has an interest rate of 9.2% and one that pays 8.6%. In the first year, the money earns $8960 in interest. How much of the $100,000 was invested in the fund with 9.2% interest? Fill in the blank with your answer.Type a numeric answer only, do not type the $ sign or commas.Assume that Mr James wants to invest his savings in less risky financial instruments with a minimum rate of return per annum . Therefore he invested his savings in some financial assets in which returns will be guarantee even if the company will be in losses also . The financial instruments purchased by Mr James is known as : a . Debentures b . Equity shares Oc . Preference shares d . Partnership shares