three (3) years are shown in Table 1 below. TABLE 1 Holistic Company Ltd. Healthy Treats BETA 1 2 STOCK PRICE STOCK PRICE Dividend Year Beginning End Dividend Beginning End Paid of Year of Paid of Year of Year Year 2019 $30 $35 $3.00 $20 $25 $0.80 2020 $35 $40 $1.50 $25 $38 $1.10 2021 $40 $45 $2.00 $38 $24 $0.50
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- Your aunt has $30,000 in a saving account that pays 0.5% annual interest, and her son has told her that she could make more if she invests into the financial markets. She knows that you are a savvy financial analyst and comes to you for help. Moreover, she tells you that she does not want to invest in individual stocks but in well-diversified portfolios. Since you wanted to make sure that you propose an asset allocation that better fits her risk aversion, you asked her to complete the investor profile questionnaire and found out that a "moderate allocation" would work well for her. You proudly tell her that the easy way to hold well-diversified portfolios is through mutual funds and exchange-traded funds (ETFs). You proposed that she opens a trading account and to use mutual funds and ETFs to match her target asset allocation. However, she wants to know more about these securities before investing and asks you: what are the advantages and disadvantages of mutual funds versus…You are a Financial Investment Counselor, and you have several clients who are working for a very successful technology company. Combined they have millions of dollars invested stock options, which are substantially in the money. You have warned them to some extent about the dangers of keeping all their assets in a single stock, and their reprise is that what other stock or portfolio could possibly give them the 40% annual return they have been receiving on their company's stock in the last two years. How would you reply, remember these are vested options but not yet exercised.Joe is a new investor and has been closely watching a company by the name of USA Ltd., a pharmaceutical company aiming to develop a coronavirus vaccine. Joe believes the following returns are possible in 2022 and has attached a probability to each potential outcome: Probability Possible Return .20 185.00% .30 83.50% .30 -5.00% .20 -100.00% d) Joe is considering investing all his savings in buying shares in USA Ltd. Explain to Joe why he should not do this by referring to the risk/return trade-off and what action Joe can take to reduce some of the risk
- Sara is currently holding 75 shares of Apple, Inc. (AAPL), 16 shares of PayPal (PYPL), and 62 shares of DraftKings Inc. (DKNG) in her secret portfolio. To purchase fancy Christmas gifts, she is planning to short the 70 shares of AAPL and 16 shares of PYPL. As a result of this action, Sara’s portfolio would A. reduce the free cash flows. B. increase the volatility of returns. C. reduce the probability of high returns. D. increase the expected rate of return. Clear my choiceRachel is a financial investor who actively buys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13 500 of Share A, $7600 of Share B, $14 700 of Share C, and $5 500 of Share D. Required:a) Compute the weights of the assets in Rachel’s portfolio?b) If Rachel’s portfolio has provided her with returns of 9.7%, 12.4%, - 5.5% and 17.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period. c) Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflation rate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Model (CAPM).d) Following is forecast for economic situation and Rachel’s portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio.State of economyMild Recession…Ethelbert.com is a young software company owned by two entrepreneurs. It currently needs to raise $1,346,400 to support its expansion plans. A venture capitalist is prepared to provide the cash in return for a 40% holding in the company. Under the plans for the investment, the VC will hold 20,400 shares in the company and the two entrepreneurs will have combined holdings of 30,600 shares. a. What is the total after-the-money valuation of the firm? (Enter your answer in dollars not millions.) b. What value is the venture capitalist placing on each share?
- During an interview with her investment adviser, a retired investor made the following two statements:a. “I have been very pleased with the returns I’ve earned on Petrie stock over the past two years and I am certain that it will be a superior performer in the future.”b. “I am pleased with the returns from the Petrie stock because I have specific uses for that money. For that reason, I certainly want my retirement fund to continue owning the Petrie stock.”Identify which principle of behavioral finance is most consistent with each of the investor’s two statements.Lana is thinking about making an iventment in a new venture called BluePearl - after performing an analysis of similar firms, she discovered several other firms (3) with the following Enterprise Value to FCF ratios: Firm 1: 5.9 Firm 2: 7.6 Firm 3: 9.1 The cashflows for BluePearl this year are expected to be $1,300,000. If BluePearl doesn't have any debt or cash currently, and 700,000 shares outstanding - what is the Price Per Share for BluePearl?Jane is ready to invest $200,000 in stocks and her financial consultant provided six different alternatives. The rates of return and industrial sectors for each stock is given in the following table: Stock Industry Annual Return 1 Airlines 0.1824 2 Airlines 0.2875 4 Banking 0.2012 5 Banking 0.1400 7 Agriculture 0.2367 8 Agriculture 0.1825 The decision will be based on the following constraints: Each stock can have a maximum investment of $40,000. The total amount invested in Banking must be at least as much as the amount invested in Agriculture. For the Banking sector, the maximum number of stocks chosen must be one. What is the optimal maximum return?
- Rachel is a financial investor who actively buys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and $5,500 of Share D. a) Compute the weights of the assets in Rachel’s portfolio? b) If Rachel’s portfolio has provided her with returns of 9.7%, 12.4%, -5.5% and 17.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period. c) Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflation rate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Model (CAPM). d) Following is forecast for economic situation and Rachel’s portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio. State of economy Probability…Rachel is a financial investor who actively buys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and $5,500 of Share D. Required: a) Compute the weights of the assets in Rachel’s portfolio? b) If Rachel’s portfolio has provided her with returns of 9.7%, 12.4%, -5.5% and 17.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period. c) Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflation rate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Model (CAPM). d) Following is forecast for economic situation and Rachel’s portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio.State of economy Probability Rate of…Debra is an investor just starting out in the stockmarket. She starts with a purchase of $10,000 of shares in ABC Ltd which has a standard deviation of returns of 10% p.a. She then invests another $10,000 purchasing shares in XYZ Ltd which has a standard deviation of returns of 40% p.a.. She estimates that the standard deviation of returns of their portfolio has increased from 10% p.a. before the XYZ purchase to 22% p.a. after the purchase. Which of the following statements correctly describe what has happened (or could have happened) to the risk position of Debra’s portfolio following the investment in XYZ? Group of answer choices Debra has not experienced any diversification benefit The maximum diversification benefit that Debra could expect is if the correlation coefficient between the returns of the two assets is equal to zero More than one of the other statements is correct Debra would only achieve a diversification benefit if the correlation coefficient between the returns of ABC…