You are watching: You read in the wall street journal that 30-day
ROA= Net income / complete Assets; and also Net Income=Sales*Profit MarginROA= (12% * 10,000,000) / 16,500,000 = 7.27%
You review in The wall Street newspaper that 30-day T-bills currently are yielding 6 percent. Her friend, a broker at Buffett Securities, has given you the following estimates of existing interest price premiums:Inflation premium 2%Liquidity premium 1%Maturity risk premium 1%Default risk premium 3%What is the real risk-free rate of return (r*) based upon the noted data?
T-bill price is provided as a nearby substitute because that the risk-free rate. Risk-free price = Inflation Premium + actual risk-free rateRf= IP+r so r= Rf-IPr*= 6% - 2% = 4%
Assume that the expectations concept holds, and also that liquidity and maturity hazard premiums room zero. If the yearly rate of attention on a 2-year Treasury bond is 8 percent and the price on a 1-year Treasury bond the is issued this particular day is 6 percent, what price of interest have to you mean on a 1-year Treasury shortcut issued one year native now?
According to the adhering to information, which of the stocks would be considered riskiest in a diversified investment portfolio of investments? Stock traditional deviation BetaAt&T 13% 0.9Apple 25% 1.9Google 20% 2.4Walmart 10% 0.5
Google must be thought about the riskiest stock in the portfolio because it has actually the highest possible beta. Total risk = sector Risk + Firm-specific risk. We can get rid of firm-specific risk through diversification for this reason the only risk we have to be involved with is the market risk which is measure by beta
You very own $5,000 of at&t stock that has actually a beta of 1.2. You likewise own $12,500 of Microsoft (beta = 1.6) and also $2,500 of Target (beta = 0.5). What is the beta of your portfolio?
Portfolio Beta:Weight is the ratio of her money invest in a stock.First, uncover the weights of every stock, then calculation portfolio beta.Weight of at & t = 5,000/20,000=0.25Weight that Microsoft = 12,500/20,000=0.625Weight the Target = 2,500/20,000=0.125Portfolio Beta = 0.251.2 + 0.6251.6 + 0.125*0.5 = 1.36
A firm has a beta the 1.45. If the industry return is supposed to it is in 9 percent and also the risk-free price is 2 percent, what is the company"s compelled return based upon CAPM?
Required return based on CAPM = Rf+Beta*(Rm-Rf)where Rf is the risk-free rate as measure up by the T-bill"s rate and Rm is the market return together approximated by the S&P 500 Index.r = 2% + 1.45*(9% - 2%) = 12.15%
Assume the you great to purchase a 5-year shortcut that has actually a maturity value of $1,000 and also makes semiannual interest payments of $60. If you call for a 8 percent yield-to-maturity ~ above this investment, what is the best price you need to be willing to pay because that the bond?
Use a gaue won calculator to deal with this problem: N= 10 (20*2=40 semiannual periods)I= 4 (10/2=5 semiannual attention rate)PV=? ($1,162.22) PMT= 60 (semiannual payments)FV= 1000 (maturity value)
Radio Shack to plan to issue bonds through a par worth of $1,000 and also 15 year to maturity. This bonds will pay $40 interest every 6 months. Existing market conditions are such that the bonds will be offered for $918.56. What is the productivity To Maturity on these bonds?
ANSWER: usage a financial calculator to resolve this problem: N= 30 (15*2=30 semiannual periods)I=? 4.5% *2 = 9% YTMPV= ($918.56) (bond"s price)PMT= 40 (semiannual payments)FV= 1000 (maturity/par value)
A re-superstructure of perpetual wanted stock pays an yearly dividend that $2 per share. If investors call for a 8 percent price of return, what must be the price the this desired stock?
Preferred stock fits zero-growth version that help to estimate the share price by splitting the dividend payment through the required rate of return.P= 2/0.08 = 25
Financial analysts forecast Brand Stores growth for the future to be 10 percent. Their recent dividend to be $0.83. What is the worth of your stock once the required rate the return is 12 percent?
g= 10%D0= 0.83r= 12%P0= 45.65The value of this stock can be approximated by the continuous growth version which is P0=(0.83 * (1+0.10)) / (0.12 - 0.10) = $45.65
As the director of funding budgeting because that Portland Corporation, friend are analyzing two support exclusive tasks with the complying with net cash flows: Year job X job Z 0 ($250,000) ($250,000) 1 200,000 10,000 2 60,000 60,000 3 35,000 100,000 4 10,000 200,000 If Portland"s required Rate of Return is 12 percent, which project(s) would certainly you choose?
: The firm will certainly accept a task as lengthy as that is NPV is above zero. For mutually exclude, projects, the certain should pick the task with the highest possible NPV. To discover NPV, you should use a jae won calculator: task X: ($250,000) CF0 project Z: ($250,000) CF0 200,000 CF1 10,000 CF1 60,000 CF2 60,000 CF2 35,000 CF3 100,000 CF3 10,000 CF4 200,000 CF4 12% I/Yr 12% I/Yr shift NPV= $7,670.55 transition NPV= $5,041.84 project X need to be preferred due to the fact that it has greater NPV.
You have actually just borrowed $8,000 come buy a used car. The loan covenant calls because that 36 monthly payments of $243.38 each to begin one month native today. If the attention is compounded monthly, then what is the yearly rate of attention on this loan?
At an effective annual interest rate of 8 percent, how numerous years will certainly it take a given amount come quadruple (ex. Indigenous $1 to thrive to $4) in value? (Round to the the next year.)
If $500 is inserted in an account that earns a an easy 6 percent, compounded monthly, what will it be worth in 5 years?
N= 60 (5*12=60 monthly periods)I= 0.5 (6/12=0.5 monthly attention rate)PV=? ($500.00) PMT= 0 FV= $674.43
Solutions hand-operated to companion Essentials the Investments8th EditionAlan J. Marcus, Alex Kane, Zvi Bodie
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