Financial analysts have estimated the returns on shares of the Goldday Corporation and the overall market portfolio under two economic states nature as follows. For Goldday the state dependent returns are 0.06 in recession, and 0.08 in an economic boom. For the market the state dependent returns are -0.12 in recession, and 0.16 in boom. The analyst consider each state to be equally likely. Compute the correlation coefficient between Goldday and the Market.
Q: Which of the following formulas is INCORRECT? O A. Div, EPS, X Dividend Payout Rate OB. E=(Div/P)+g…
A: In this question, we are required to identify the incorrect formula.
Q: Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume…
A: return on investment refers to the return that is being earned over the amount of investment by the…
Q: The duration of a preferred stock is its maturity. O A. Greater than or less than, depending on its…
A: The preferred stock is usually issued for the longer term with no definite maturity date. The issuer…
Q: Show Boat Dinner Theatres has paid annual dividends of $0.22, $0.38, and $0.50 a share over the past…
A: This question is based on the dividend discount model.. This model is an important model often used…
Q: Spencer did research on the bond market and found the following default-free zero-coupon bonds:…
A: The bond which is issued by the firm at a heavy discount with no coupons is called a zero-coupon…
Q: A Company is considering two mutually exclusive projects whose expected net cash flows are in the…
A: IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…
Q: ly Assignment VI i 3 ts eBook Print References Variance 0.3203 11.6 % Saved 3 You've observed the…
A: Arithmetic average is mean of return that are considered and arithmetic average is used for…
Q: Suppose Mullens Corporation considering three average-risk projects with the following costs and…
A: The after-tax cost of debt is the interest tax shield which reduces the burden of tax due to…
Q: What is the difference bet
A: There are many types of traders in the market and each trader has their own objective in the market…
Q: analyse the methods of budgeting that are at the disposal of the public finance office bears in…
A: As part of financial planning, budgeting is forecasting and allocating money for upcoming tasks,…
Q: 00 for corporate bonds that have a par value of $10,000 and a coupon rate of 7.4 percent, payable…
A: Bonds are paid coupon interest payments each period and par value is paid on maturity of bond.
Q: Brief introduction/background of CIBC. (Comprehensive summary of the bank’s origin identifying its…
A: The Canadian Imperial Bank of Commerce, commonly referred to as CIBC, is one of the 'Big Five' banks…
Q: Delia has a choice between $113,000 in 10 years or $52,000 today. Use Appendix B. a. Calculate the…
A: In this question, we are required to determine the present value of $113,000 to be received in 10…
Q: Unless stated otherwise, interest is compounded annually, and payments occur at the end of the…
A: The leverage value refers to the total value of a company when it uses debt or leverage to finance…
Q: Last year, Joan purchased a $1,000 face value corporate bond with an 10% annual coupon rate and a…
A: Rate of Return:The rate of return is a measure used to evaluate the profitability of an investment…
Q: he Cement Company has revenues of $100,000 in year 1 and it is expected to grow by 15% in year 2 and…
A: The operating cash flow is the cash generated from the daily operations of the company. It can be…
Q: Two investments have the following pattern of expected returns: BTCF Year 1 $6,400 Year 1 BTCF…
A: When the investors need to find the percentage of returns (discount percentage) that equates the…
Q: You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that…
A: The cash flows of the project include the initial investment amount, the operating cash flows, and…
Q: Grill Master Johnnys is thinking about purchasing a new, energy-efficient grill. The grill will cost…
A: Free cash flow is that amount which is earned by the investor from the project. It is the net amount…
Q: Duo Corporation Year 812345 is evaluating a project with the following cash flows: Cash Flow -$…
A: YearCash flow0-$28,800.001$11,000.002$13,700.003$15,600.004$12,700.005-$9,200.00Discount…
Q: Media Blas Incorporated issued-bonds 10 years ago at $1,000 per bond. These bonds had a 25-year life…
A: Bonds are fixed-income instruments that reflect investor loans to borrowers, who usually represent…
Q: What is the company's cost of preferred stock for use in calculating the WACC? a. 7.32% b.6.25%…
A: The cost of preferred stock is the percentage return that a business has to give to preferred…
Q: Suppose S $96, K = $100, u = 1.03, d = 0.97, and R = 1.02. The risk-neutral probability, q. that the…
A: > Given data:> S = 96> K = $100> u = 1.03> d = 0.97> R = 1.02
Q: are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that…
A: The cash flows of the project include the initial investment amount, the operating cash flows, and…
Q: How does a CDS work in terms of indicating credit risk? Time Left: 01:59:28 Tag the question Subject…
A: A Credit Default Swap (CDS) is a financial derivative that allows investors to manage and mitigate…
Q: A woman, with her employer's matching program, contributes $300 at the end of each month to her…
A: Future value of the money is the amount of deposit done and the amount of compounded interest…
Q: f i have $4360 now, and I continue to deposit $260 each month, how much will I have in 12 months at…
A: Compound = Monthly = 12Present Value = pv = $4360Payment = p = $260Time = t = 12Interest Rate = r =…
Q: If the minimum attractive rate of return is 7%, calculate the incremental rate of return. A ($) B…
A: Incremental cash flows consist of initial incremental cash outflow, incremental annual benefit and…
Q: Snyder purchased a call option on a stock (non- dividend). The time to maturity is 0.4 years. The…
A: An option is an agreement between two parties granting one the opportunity to buy or sell a security…
Q: - Subway, with more than 27,000 outlets in the U.S., is planning for a new restaurant in Buffalo,…
A: Total weighted score is a calculated value that combines individual scores assigned to different…
Q: A project that costs $24,500 today will generate cash flows of $8,400 per year for seven years. What…
A: The payback period is the time to recover the cost of the investment.
Q: DK Investment Co is a US firm that executes a carry trade in which it borrow euros (where interest…
A: Carry trade investment is a method adopted by investors that involves borrowing in a different…
Q: Consider the following information on large-company stocks for a period of years. Large-company…
A: a. The arithmetic mean of the annual return is calculated without considering inflation. Therefore,…
Q: You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that…
A: The cash flows of a project include (1) initial investment (2) operating cash flows and (3) terminal…
Q: What is the return on assets for a firm that has a gross profit of $1.2 million, an operating profit…
A: The return on assets can be defined as the ratio that measures the return in percentage terms that…
Q: A stock is expected to pay a dividend of S0.75 at the end of the year. The required rate of return…
A: The Dividend Growth Model refers to a model that helps in calculating the intrinsic value of a stock…
Q: CX Enterprises has the following expected dividends $1.09 in one year, $1.23 in two years, and $1.34…
A: Where,P0 = Stock valueD0 = Current dividendg = growth rate in decimal format D0 ( 1 + g) =Expected…
Q: You have received price quotations for the new photoreactor to be implemented to the production…
A: EUAC is the unifrom equivalent annual cost in which all cost are included in that including cost of…
Q: At one point, some Treasury bonds were callable. Consider the prices on the following three Treasury…
A: Calculation of X:C2=C1∗X+C3∗(1−X).8.85=7.10∗X+12.60∗(1−X)8.25=7.10∗X+12.60−12.60∗XX=0.79091
Q: On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued…
A: The "discount on a bond" means the gap or difference between a bond's face value or par value) and…
Q: ou believe that oll prices will be rising more than expected, and that rising prices will result in…
A: You have taken a long position. We have to find the profit (loss) on expiration.A put option gives…
Q: MIRR A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 12…
A: MIRR is the modified internal rate of return (MIRR). The MIRR is useful in situations where cash…
Q: Assume that a firm expects to be able to liquidate the new machine, which cost $400,000, at the end…
A: Terminal cash flow is the cash flow from the after-tax selling of equipment plus the return of…
Q: A $33,950 loan at 10.6% compounded semiannually is to be paid off by a series of $4,000 payments…
A: Number of Payments can be calculated using=NPER(rate,pmt,pv,[fv],[type])Rate The interest rate for…
Q: You have a portfolio with a standard deviation of 20% and an expected return of 18%. You are…
A: Standard deviation refers to the measurement of the scatterness of the data from its mean value…
Q: Garrett deposits $8000. Determine the APY if there is an APR of 3% compounded daily. Express your…
A: APY stands for annual percentage yield. It takes into consideration the compounding frequency. APR…
Q: Bethesda Biosys issues an IPO on a best-efforts basis. The company's investment bank requires a…
A: Issue price per share =$25Investment bank spread = 18%Issue price less spread = Issue price per…
Q: The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates…
A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts…
Q: You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend…
A: The capital asset pricing model (CAPM) represents the minimum rate of return required by investors…
Q: The existing 10 year, 6% bonds are trading in the market at $900. The corporate tax rate is 32%…
A: Time = n = 10 YearsCoupon Rate = c = 6%Market Price of Bond = pv = $900Tax Rate = t = 32%Assuming…
Financial analysts have estimated the returns on shares of the Goldday Corporation and the overall market portfolio under two economic states nature as follows. For Goldday the state dependent returns are 0.06 in recession, and 0.08 in an economic boom. For the market the state dependent returns are -0.12 in recession, and 0.16 in boom. The analyst consider each state to be equally likely. Compute the correlation coefficient between Goldday and the Market.
Step by step
Solved in 6 steps with 9 images
- Consider the following information about the various states of the economy and the returns of various investment alternatives for each scenario. Answer the questions that follow. Question 1 Fill in the parts in the above table that are empty. Using the data generated in the previous question (Question 1); Plot the Security Market Line (SML) 2. Superimpose the CAPM’s required return on the SML % Return on T-Bills, Stocks, and Market Index State of the Economy Probability T- Bills Phillips Pay- up Rubber- made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean Standard Deviation Coefficient of Variation Covariance with MP…Investment advisors estimated the stock market returns for four market segments: computers, financial, manufacturing, and pharmaceuticals. Annual return projections vary depending on whether the general economic conditions are improving, stable, or declining. The anticipated annual return percentages for each market segment under each economic condition are as follows: Assume that an individual investor wants to select one market segment for a new investment. A forecast shows improving to declining economic conditions with the following probabilities: improving (0.2), stable (0.5), and declining (0.3). What is the preferred market segment for the investor, and what is the expected return percentage? At a later date, a revised forecast shows a potential for an improvement in economic conditions. New probabilities are as follows: improving (0.4), stable (0.4), and declining (0.2). What is the preferred market segment for the investor based on these new probabilities? What is the expected return percentage?The file Fortune500 contains data for profits and market capitalizations from a recent sample of firms in the Fortune 500 a. Prepare a scatter diagram to show the relationship between the variables Market Capitalization and Profit in which Market Capitalization is on the vertical axis and Profit is on the horizontal axis. Comment on any relationship between the variables. b. Create a trendline for the relationship between Market Capitalization and Profit. What does the trendline indicate about this relationship?
- An investment Analysist provide the following data regarding the possible future returns on AmDa’s common stock State of economy Probability ReturnRecession 0.25 -1.4%Normal 0.45 9.4%Boom 0.30 15.4%i. Compute the expected return on the security? ii. Compute the standard deviation on the security? iii. Compute the Coefficient of variationConsider the following information about the various states of economy and the returns of various investment alternatives for each scenario. State of the Economy Recession Below Average Average Above Average Boom Mean Standard Deviation Coefficient of Variation Covariance with MP Correlation with Market Index Beta CAPM Req. Return Valuation (Overvalued/Undervalued/Fairly Valued) Nature of stock (Aggressive/Defensive) Probability 0.2 0.1 0.3 0.3 0.1 % Return on T-Bills, Stocks and Market Index T- Bills 7 7 7 7 7 Phillips -22 Fill the parts in the above table that are shaded in yellow. -2 20 35 50 Pay- Rubber- up made 28 10 -10 7 45 30 14.7 0 -10 -20 Market Index -13 15 29 43a. Determine Stock X's beta coefficient. b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE. c. Assume that the required return on equity, re, for Stock X is equal to its average return. Likewise, assume that the market return is equal to the NYSE's average return. Using the information calculated, what is the assumed risk-free rate in the CAPM equation? Hint: Solve algebraically for rf in, re = r¡ + B(rm – r;)
- assume that an individual investor wants to select one market segment for a new investment. a forecast shows stable to declining economic conditions with the following probabilities: improving (0.2), stable (0.5), and declining (0.3). what is the preferred market segment for the investor, and what is the expected return percentage?Consider the following information about the various states of economy and the returns of various investment alternatives for each scenario. Answer the questions that follow. % Return on T-Bills, Stocks and Market Index States of Economy Probability T-Bills Phillips Pay-up Rubber-Made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean Variance (%) ^2 Standard Deviation Coefficient of Variation Covariance wit MP Correlation with Market Index Beta CAPM Req. Return Valuation ( Overvalued / Undervalued/Fairly Valued) Nature of Stock…Consider the following information about the various states of economy and the returns of various investment alternatives for each scenario. Answer the questions that follow. % Return on T-Bills, Stocks and Market Index States of Economy Probability T-Bills Phillips Pay-up Rubber-Made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean 7 16.9 20.7 19.6 15 Variance (%) ^2 0 549.09 244.124 358.04 313.6 Standard Deviation 0 23.4326695 15.6244712 18.92194493 17.7087549 Coefficient of Variation 0 1.386548491 7.54805372 0.965405354 1.18058366 Covariance wit MP 0 4.13 -275 231 313.60 Correlation with Market Index 0.9953 -0.9953 0.6894 1.0000 Beta 0 1.32…
- Consider the following information about the various states of economy and the returns of various investment alternatives for each scenario. Answer the questions that follow. % Return on T-Bills, Stocks and Market Index States of Economy Probability T-Bills Phillips Pay-up Rubber-Made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean Variance (%) ^2 Standard Deviation Coefficient of Variation Covariance wit MP Correlation with Market Index Beta CAPM Req. Return Valuation ( Overvalued / Undervalued/Fairly Valued) Nature of Stock…Consider the following information about the various states of economy and the returns of various investment alternatives for each scenario. Answer the questions that follow. Work out the Covariance with mp showing detatiled working and explanation % Return on T-Bills, Stocks and Market Index States of Economy Probability T-Bills Phillips Pay-up Rubber-Made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean 7 16.9 20.7 19.6 15 Variance (%) ^2 0 549.09 244.124 358.04 313.6 Standard Deviation 0 23.4326695 15.6244712 18.92194493 17.7087549 Coefficient of Variation 0 1.386548491 7.54805372 0.965405354 1.18058366 Covariance wit MP Correlation with Market Index…1. The possible returns from investing in BestMax share are as follows: Probability of state Return if state State of economy of economy occurs Strong 0.26 96% Normal 0.51 12% Weak 0.23 -83% Based on the above information, calculate the following for BestMax share: (a) Standard deviation of return (9) (b) Coefficient of variation ( 3) (c) What does the coefficient of variation reveal about an investment's risk that the standard deviation does not? Explain. ( 4) (d) What is 'risk' in the context of financial decision making? Explain.