• Citibank - Basics of corporate finance
    , have a maturity of 10 years, and are priced to yield 8.0%. What price percentage would investors expect to pay for the new bonds? Give your answer in percentage terms. 95.81 Use the bond features on your calculator to solve this problem. Enter 7.375% as the coupon rate and 8.0% as the yield to...
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  • Citibank Basis of Corporate Finance
    your solutions to the correct answers in the Answer Key that follow on the next page. 8. Onyx Corporation has a beta of 1.50. The risk-free rate of return is 10% and the expected return on the market portfolio is 12%. What rate of return would investors in Onyx Corporation expect to earn? _____a...
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  • Fundamentals of Finance Management
    , but briefly, the reason is that shortterm securities have less interest rate risk than longer-term securities, hence smaller MRPs. Therefore, short-term rates are normally lower than long-term rates. SELF-TEST QUESTIONS What is a yield curve, and what information would you need to draw this curve...
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  • Market
    always have a lower beta than a one-stock portfolio. d. All of the statements above are correct. e. None of the statements above is correct. Portfolio risk and return Answer: a Diff: E [xi]. Which of the following statements best describes what would be expected to happen as you...
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  • Sorry Man, I Just Want to Finish Reading a Paper the Crucible. Dont Read This. Its Useless
    would you lose faith in the CAPM? Figure 13.5 shows what security market relations could look like if the CAPM did not work. In plot (a), the rate of return does not seem to increase linearly with beta if beta is greater than about 0.5. Because beta is a measure of risk contribution to your market...
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  • Instructor’s Manual Fundamentals of Financial Management
    associated with short-term borrowing is lower than that associated with long-term borrowing. Another reason the firm might not wish to entirely use long-term debt is that if there are seasonal funds requirements it would be borrowing at certain times when the funds were not needed. 10...
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  • Notes
    %(0.985) = 14.9%. J. 1. SUPPOSE INVESTORS RAISED THEIR INFLATION EXPECTATIONS BY 3 PERCENTAGE POINTS OVER CURRENT ESTIMATES AS REFLECTED IN THE 8 PERCENT T-BILL RATE. WHAT EFFECT WOULD HIGHER INFLATION HAVE ON THE SML AND ON THE RETURNS REQUIRED ON HIGH- AND LOW-RISK SECURITIES? ANSWER: [SHOW...
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  • Solution Manual-Investment
    have lower rates; higher risk municipals can (and often do) have higher rates. 10. AIMR suggested answer: a. The pure expectations theory states the term structure of interest rates is explained entirely by interest rate expectations. The theory assumes that forward rates of...
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  • Investment Analysis and Portfolio Management 7th Edition
    T-bills during this period? 11. What would your required rate of return be on common stocks if you wanted a 5 percent risk premium to own common stocks given what you know from Problem 10? If common stock investors became more risk averse, what would happen to the required rate of return on common...
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  • Silicon Valley Medical Technologies
    you think SIVMED’s historical beta would be better or worse measure of SIVMED’s future market risk than the historical beta for an average NYSE company would be for its futuremarket risk? Explain your answer. Historical Market Betas The conventional approach for estimating the beta of an...
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  • Manager
    . c. Had the firm used the weighted average cost calculated in part b, what actions would have been indicated relative to projects 263 and 264? d. Compare and contrast the firm’s actions with your findings in part c. Which decision method seems more appropriate? Explain why. LG2 10–2 Cost of...
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  • Principles of Corporate Finance
    average return on this portfolio have been higher or lower? Explain your results. 14. Look back at Table 7.5 on page 174. a. What is the beta of a portfolio that has 40% invested in Disney and 60% in Exxon Mobil? 208 Part Two Risk b. Would you invest in this portfolio if you had no superior...
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  • New Corporate Finance
    levered firm’s projects that have similar risks to the firm as a whole. Is the discount rate for the projects higher or lower than the rate computed using the security market line? Why? 10. Beta What factors determine the beta of a stock? Define and describe each. QUESTIONS AND PROBLEMS 1...
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  • Finance
    other securities issued by your firm. All you have to do to determine r is to answer the question, What interest rate would my firm have to pay to borrow money directly from the capital markets rather than from the government? Suppose that this rate is 10 percent. Then NPV 100,000 100,000 100,000...
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  • • Brealey R., Myers S., Marcus A., “Fundamentals of Corporate Finance”, Mcgraw-Hill/Irwin, New York, 2007.
    calculate the average return that you could have earned over this period if you had held a combination of the market and a risk-free loan. Make sure that the combination has the same beta as Ms. Sauros’s portfolio. Would your average return on this portfolio have been higher or lower? Explain your...
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  • Introduction to Corporate Finance
    value of the lump sum at the end of year 5? b. What is the future value of the mixed stream at the end of year 5? c. Based on your findings in parts (a) and (b), which alternative should Gina take? d. If Gina could earn 10 percent rather than 7 percent on the funds, would your recommendation in part...
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  • Emba
    terms of both beta risk and total risk. Which of the following statements is most correct? * Riskier-than-average projects should have their IRRs increased to reflect their added riskiness. Clearly, this would make the project acceptable regardless of the amount of the adjustment. * The accept...
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  • Intermediate
    example, what if investors, because personal tax rates on capital gains are lower than those on dividends, value capital gains more highly than dividends? Then, if two stocks had the same market risk, the stock paying the higher dividend would have the higher required rate of return. In that case...
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  • Fm All
    ) - Rf) = 4 + (1.2 x 5) = 10% The CAPM predicts that the cost of equity of RD Co is 10%. The same answer would have been found if the information had given the return on the market as 9%, rather than giving the equity risk premium as 5%. ASSET BETAS, EQUITY BETAS, AND DEBT BETAS If a company has no debt...
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  • Investment Bodie, Kane, Marcus
    -end fund closed-end fund load hedge fund 12b-1 fees soft dollars turnover exchange-traded funds KEY TERMS 1. Would you expect a typical open-end fixed-income mutual fund to have higher or lower operating expenses than a fixed-income unit investment trust? Why? 2. What are some...
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