The variances of stocks A and B are 1 percentage square and 4 percentage square, respectively. If the covariance between the two stocks is 0.6 percentage square, what is the correlation?  Dont

Q: ABC Telecom Inc. is expected to generate a free cash flow (FCF) of $1,910.00 million this year (FCF,…

A: FCF0 = $1,910.00 millionGrowth rate for 2 years = 19.00%Growth rate thereafter = 2.10%WACC =…

Q: Without using excel, answer the question:  The City of State College plans to issue bonds with a par…

A: The price of a bond is equal to the present value of the coupon payments and the face value of the…

Q: $13,850 loss  $13,850 gain  $17,850 loss  $17,850 gain

A: For the payment, Volkswagen needs to sell € and buy $. We are given the futures prices as $1.3502.…

Q: ercise, we consider the effects of starting early or late to save for retirement. Assume that the…

A: The retirement planning should be done based on the future requirements time value of money and…

Q: Present Value Years 11 3 15 20 Interest Rate 5% 10 % 13 % 12 % Future Value $ 18,228 42,417 799,382…

A: Present Value is a current value of future value which is received at some specified period of time…

Q: What is the before tax NPV using a 15% equity discount rate? (round your final answer to whole…

A: Net Present Value (NPV) is a financial concept widely used in investment analysis and capital…

Q: Required information Exercise 9-18A Calculate the issue price of bonds (LO9-7) [The following…

A: Issue price of the bond is the price to value at which the bond is issued, considering the market…

Q: Benjamin Graham, the father of value investing, once said, "In the short run, the market is a voting…

A: VALUE OF STOCK FORMULA:where.r= return of equityg= growth rateThe  intrinsic value of companies said…

Q: Consider the following information on a firm: Beginning book value = $100,000; Ending book value =…

A: The abnormal earnings valuation model is the method for determining a company's equity value based…

Q: You are negotiating with your underwriters in a firm commitment offering of 11 million primary…

A: IPO is initial public issue in which for the first time shares are issued to general public and…

Q: Based on the current capitalization, KHM Sdn Bhd has made the following forecast for the coming…

A: Here,EBIT is RM 40,000,000Interest Expense is RM2,000,000EPS is RM4.00P/E Ratio before…

Q: Exercise 7-19 (Algo) Bonds payable-various issues LO 7-8 Reynolds Company issued $71 million face…

A: Bonds can be referred to as financial securities traded in the financial markets and issued for…

Q: Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility for…

A: The purchase price of the machinery is $281,000.The first year operating revenue is $116,000 and…

Q: Howell Petroleum, Incorporated, is trying to evaluate a generation project with the following cash…

A: Cash flow in year 0=-$44,500,000Cash flow in year 1=$70.500,000Cash flow in year…

Q: Assume an asset sells in the spot market for a price of $140, the risk-free rate is 5%, and a…

A: Solution:Forward contract means right to buy or sell the underlying asset at maturity.

Q: A project has the following cash flows: Year Cash Flows 0 -$10,700 1 4,510 2 6,460 3 4,000 4 -1,840…

A: The MIRR is a financial indicator that is used to assess the viability of an investment or project.…

Q: With a $350,000 home mortgage loan with a 20-year term at 9% APR compounded semiannually compute the…

A: Mortgage loans are paid by equal monthly installments that carry the payment for interest and…

Q: Bella Italia, a famous Italian restaurant, is faced with two independent opportunities, i.e.,…

A: Payback period is that period of time under which investor will return his invested amount. lower…

Q: Starkiller Base Inc. expects to have a changing dividend policy over the next few years starting…

A: In the given case, we have provided the dividend just paid and the growth rates for the following…

Q: The Yellow Corp has $750,000 of debt outstanding, and it pays an interest rate of 8% annually. Its…

A: ParticularsValuesOutstanding Debt$750,000Annual interest rate8%Annual sales$2,250,000Average tax…

Q: Stocks A and B have the following probability distributions of expected future returns: Probability…

A: Standard Deviation mesaure the risk which is involved in earning the return from the stock. lower…

Q: The following bond was quoted in The Wall Street Journal: Bonds NJ 4.125% 35 Current yield 3.5%…

A: The price of the bond is denoted as a percentage of par value. The net change determines the %…

Q: Dialysis is a biotech company that is expected to experience short-term supernormal dividend growth…

A: Terminal value is calculated as follows:-Terminal value = whereD= dividend paidg = growth rater =…

Q: Your employer contributes $500 per month, at the beginning of each month, to a retirement fund on…

A: This is a case of annuity due. Annuity refers to a stream of cash flows occurring constantly from…

Q: Duo Corporation is evaluating a project with the following cash flows: Year 0 1 2 Cash Flow -$…

A: YearCash flows0-16700178002900038600474005-4800Discounting Factor = 12%

Q: What are the prices of a call option and a put option with the following characteristics?

A: An option is an agreement between two parties granting one the opportunity to buy or sell a security…

Q: As the CEO of a western wear manufacturing company called Over Y'alls. Your marketing department has…

A: NPV refers to the net present value of the project or capital investment which can be determined by…

Q: Dec 31, 2014 you bought your first house with a loan of $190,000. The loan was a 30-year mortgage…

A: Mortgage loans are paid by equal periodic monthly fixed payments and these monthly payments carry…

Q: You find the following Treasury bond quotes. To calculate the number of years until maturity, assume…

A: A bond is a kind of debt security issued by the government and private companies to the public for…

Q: If you invest $10,000 today for 8 years, how much will the original investment be worth if…

A: Solution:When some amount is invested somewhere, it earns interest on it.The amount initially…

Q: using excel, answer the question: An investor takes a loan for $40000 to purchase inventory to…

A: We take loans to buy large ticket items like a car or a house which otherwise we cannot afford. The…

Q: Lambert Manufacturing has $120,000 to invest in either Project A or Project B. The following data…

A: Npv is also known as Net Present value. It is a capital budegting technique which helps in decision…

Q: Common stock value-Variable growth Newman Manufacturing is considering a cash purchase of the stock…

A: Expected dividend( D 0) = $2.04Growth rate for first 3 years = 40%Growth rate after 3 year=9% per…

Q: Kellogg Co. (K) recently earned a profit of $412 earnings per Shar percent rate over the past few…

A: P/E ratio is the price to earnings ratio.This ratio is computed by dividing the price per share by…

Q: What's the impact on [Cash Flow] if depreciation increases by $10? Assuming the effective tax rate…

A: Solution:Depreciation is a non-cash expense which is incurred by the continuous of asset. It is the…

Q: Slithering Snakes is considering adding a new product line that is expected to increase annual sales…

A: 1.Depreciation per year is calculated as follows in case of Straight line method of depreciation…

Q: Starware Software was founded last year to develop software for gaming applications. The founder…

A: The value of the company before the new investments take place is known as the pre-money…

Q: The Metchosin Corporation has two different bonds currently outstanding. Bond M has a face value of…

A: Bond M:Face value = $50,000First 6 years semi-annual payment = $0Next 8 years semi-annual payment =…

Q: Cooperton Mining just announced it will cut its dividend from $4.08 to $2.34 per share and use the…

A: The fair value of any asset is the present value (PV) of the cash flow that the asset/ investment is…

Q: A new computer system will require an initial outlay of $16.250, but it will increase the firm's…

A: Calculation of Net Present Value = Present Value of Future Cash Flows @ 8% - Initial Outlay…

Q: a. What is the new price of the 3-year bonds? (Do not round intermediate calculations. Round your…

A: Bond valuation involves determining the present value of a bond's future cash flows, which include…

Q: You would like to save a million dollars by depositing $25,000 at the end of year into an account…

A: The FV of an investment refers to the combined value of the cash flows of the investment at a…

Q: Lengefeld Manufacturing expects to have earnings per share of $2 in the coming year. The firm does…

A: According to Gordon's growth model,Po = wherePo =Current stock priceD1 = Expected dividendr =…

Q: A mutual fund has $246 million dollars in assets, 27 million shares outstanding, and a total expense…

A: The turnover rate of a fund is a financial term that quantifies how frequently it buys and sells…

Q: A project's expected return is 20%, which represents a 35% return in a boom, a 15% return in a…

A: Expected return of project is computed as follows:-Rp = (Rb*Pb)+(Rn*Pn)+(Rs*Ps)whereRp =Expected…

Q: You just purchased a share of Northstar Sports for $92.46. You expect to receive a dividend of $4.80…

A: Variables in the question:Purchase price(P0)=$92.46Dividend in 1 year(D1)=$4.80Price after…

Q: Problem 13-6 (Algo) Coefficient of variation [LO13-1) Possible outcomes for three investment…

A: The coefficient of variation is represented as it is considered as the ratio of the standard…

Q: Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is…

A: In arbitrage method , trader takes advantage of market inefficiencies and make profit.Profit earned…

Q: You need to accumulate $10,000. To do so, you plan to make deposits of $1,250 per year, with the…

A: The future value refers to the value of cash flows or annuity at the future date. Future date can be…

Q: You are offered an annuity that will pay $4,250 per quarter for 8 years (first payment made today).…

A: Annuity worth refers to an amount required today for the fulfillment of payment of all series of…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.