"Rate Of Return" Essays and Research Papers

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Chapter 2 Hw

3636 w2= 35,000/55,000= .6364 portfolio bet= .3636*.7 + .6364*1.3 = 1.082 Required rate of return AA industries = risk free rate + market risk premium*beta AA industries ri = rRF + (rM - rRF)b 4% + (12%-4%)*.8 = 10.4% required return= risk free rate+ market risk premium*beta ri = rRF + RPM* b Market- required return= 5%+7%= 12% Beta of 1- required return= 5%+ 7%*1= 12% Beta of 1.7- required return= 5%+ 7%*1.7 = 16.9% = P1r1+P2r2+P3r3+ etc. = (0.1)(-50%) + (0.2)(-5%) + (0.4)(16%)...

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Lex Cost of Capital

than £340 million of funds. To reinvest this huge amount of funds it evaluates many investment options and acquisitions. To evaluate the worth of new investments, Lex uses discounted cash flow analysis. In order to employ DCF analysis method, discount rate or cost of capital required. Now the question is arises ‘what should be real cost of capital’. Case Analysis: After a long series of acquisition and divestment, Lex service Plc’s businesses remains to consist only two fundamental halves: * Automotive...

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CAPM

well-diversified portfolio. The risk of individual securities is measured by β (beta). Thus, the equation for security market line (SML) is: E(Rj) = Rf + [E(Rm) – Rf] βj (Equation 1) Where E(Rj) is the expected return on security j, Rf the risk-free rate of interest, Rm the expected return on the market portfolio and βj the undiversifiable risk of security j. βj can be measured as follows: βj = Cov (Rj, Rm) Var (Rm) = σj σm Cor jm σ2 m = σj Cor jm σm (Equation...

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Finance Formula Sheet

an annuity of $RM1 per period for t years (t-year annuity factor) is: Measures of Risk: Variance of returns = σ2 = expected value of Standard deviation of returns, σ = Covariance between returns of stocks 1 & 2 = σ1,2 = expected value of Correlation between returns of stocks 1 & 2: Beta of stock i = βi = The variance of returns on a portfolio with proportion xi invested in stock i is: A Growing Perpetuity (Gordon model): If...

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Woolworths Ltd (WOW) Valuation Report

of the Australian Security Exchange (ASX) listed company, Woolworths Ltd (WOW). Historical data is utilised with the Retention Growth Model to estimate the expected perpetual semi-annual growth rate of the company’s dividends. The Capital Asset Pricing Model is used to estimate the required rate of return for this company and the current expected share price is calculated using the Constant Dividend Growth Model. All data can be found in the appendices. The results of the analysis show that the...

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Bonds

ASSIGNMENT UDBS Consider a 10 year bond that has a face value shs 1000, a coupon rate of 6% and pays interest once a year. (a)Suppose person A bought this bond at par when it was initially issued and sold it 1 year later to person B for shs 1024.What is B’s total return? Soln Total return =[ Interest paid +(selling price – buying price)]/buying price Given; Annual interest paid = coupon rate x par value, coupon rate = 6%, par value =1000. = 6% x1000 ...

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fin 314 sheet

subtract Best case +P, +Q, -V, -FC Worst case –P, -Q, +V, +FC Best case scenario: OFC = [(Q+ x P+) – (Q+ x V-) – FC- – DEP] (1 - TAX RATE) +DEP high rev, low cost Worst case scenario: OCF= [(Q- x P-) – (Q- x V+) – FC+ – DEP] (1 - TAX RATE) +DEP high cost, low rev Plug OCF as payment and solve for (PV) PV – FC = best case TI-83 2nd finance, calc NVP, (% return on proj (given), - CF0 (cost given), { (OCF) best, worst case answer, repeat best case answer for how many years } ) Total cost: TC = VC...

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University of Toronto

download the US 3 month T-Bills (TB3MS) interest rates series through December 2012. To do this, type “TB3MS” in cell A1  type “m” in cell A3  click the button “Get FRED data”. You’ll have to delete some rows to get a data set through December 2012. Don’t delete the “dates” column – you’ll need it later on. 1 University of Toronto, Department of Economics, ECO 204, 2013 - 2014 Note: FRED’s TB3MS series reports the monthly interest rate (in percentage terms) on the first day of each ...

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Southeaster Specialty Case Study

2, 3, 4, & 6) 1. Is the return on the one-year T-bill risk free? No, the return on the one-year T-bill is not risk free. Financial risk is related to the probability of earning a return less than expected and the larger the chance of earning a return far below that expected, the greater the amount of financial risk. Risk free assumes 100% probability that the investment will earn the total percent of return that is expected. 2. Calculate the expected rate of return on each of the five investment...

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Multipe choice

defined as the rate of return on A. A risky asset minus the inflation rate B. The overall market C. A Treasury bill D. A risky asset minus the risk-free rate E. A risk-less investment Answer: D 2(5). The variance measure the: Non-graded A. Total difference between the actual returns and the average returns B. Average difference between the actual squared returns and the risk-free returns C. Average squared difference between the actual returns and the risk-free returns D. Total...

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