INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 7, Problem 1CP
a.
Summary Introduction
Introduction: Through the yield of portfolio is the weighted average yield of individual assets in the portfolio.
To identify: Change in the risk of portfolio.
b.
Summary Introduction
Introduction:Diversification is a most effective technique for reduce the risk in the portfolio.Diversification is a most effective technique for reduce the risk of a portfolio.:a corporate extension strategy in which a firm enlarge its operation by moving into a different industry
To analyze: Reduction in number of issues without affecting risk.
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Hennessy & Associates manages a $30 million equity portfolio for the multimanager Wilstead Pension Fund. Jason Jones, financial vice president of Wilstead, noted that Hennessy had rather consistently achieved the best record among the Wilstead’s six equity managers. Performance of the Hennessy portfolio had been clearly superior to that of the S&P 500 in four of the past five years. In the one less-favorable year, the shortfall was trivial.Hennessy is a “bottom-up” manager. The firm largely avoids any attempt to “time the market.” It also focuses on selection of individual stocks, rather than the weighting of favored industries.There is no apparent conformity of style among Wilstead’s six equity managers. The five managers, other than Hennessy, manage portfolios aggregating $250 million made up of more than 150 individual issues.Jones is convinced that Hennessy is able to apply superior skill to stock selection, but the favorable returns are limited by the high degree of…
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You are considering a stock investment in one of two firms (AllDebt, Inc., and AllEquity, Inc.), both of which operate in the same industry and have identical EBITDA of $15.2 million and operating income of $10.0 million. AllDebt, Inc., finances its $40 million in assets with $39 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. AllEquity, Inc., finances its $40 million in assets with no debt and $40 million in equity. Both firms pay a tax rate of 21 percent on their taxable income.
Calculate the income available to pay the asset—funders’ investment—(the debt holders and stockholders) and resulting return on assets for the two firms. (Enter your dollar answers in millions of dollars. Round all answers to 3 decimal places.)
AllDebt. AllEquity
Income available for asset funders. million. million
Return on asset-funders' investment. %. %
Chapter 7 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
Ch. 7 - Prob. 1PSCh. 7 - Prob. 2PSCh. 7 - Prob. 3PSCh. 7 - Prob. 4PSCh. 7 - Prob. 5PSCh. 7 - Prob. 6PSCh. 7 - Prob. 7PSCh. 7 - Prob. 8PSCh. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - Prob. 15PSCh. 7 - Prob. 16PSCh. 7 - Prob. 17PSCh. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - Prob. 21PSCh. 7 - Prob. 22PSCh. 7 - Prob. 23PSCh. 7 - Prob. 1CPCh. 7 - Prob. 2CPCh. 7 - Prob. 3CPCh. 7 - Prob. 4CPCh. 7 - Prob. 5CPCh. 7 - Prob. 6CPCh. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - Prob. 9CPCh. 7 - Prob. 10CPCh. 7 - Prob. 11CPCh. 7 - Prob. 12CPCh. 7 - Prob. 13CP
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