Selected Answer: If the risk-free rate rises by 0.5% but the market risk premium declines by that same amount, then the required rates of return on stocks with betas less than 1.0 will decline while returns on stocks with betas above 1.0 will increase. Correct Answer: If the risk-free rate rises by 0.5% but the market risk premium declines by that same amount, then the required rate of return on an average stock will remain unchanged, but required returns on stocks with betas less than
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* Question 1 1 out of 1 points | | | You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain, ignoring transactions cost?Answer | | | | | Selected Answer: | $10,000 | Correct Answer: | $10,000 | Response Feedback: | Tuckerton could go bankrupt, with a share price of $0. You could keep the entire proceeds from the short sale. | | | | | * Question 2 1 out of 1 points | | | Private placements can
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1. The T-Bond return in table 1 is shown to be independent of the economy because no matter what the current status of the economy is, the bond will still be returning 8%. The bond is also not entirely risk free due to the fact that it is exposed to inflation, however it will not be a real factor due to the short period of time for return. 2. When looking solely upon expected returns the S&P 500 fund looks like the clear-cut best option coming in with a 15% return. 3. When measuring
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investment assets and securities. It is a dynamic and flexible concept and involves regular and systematic analysis, judgment, and action. A combination of securities held together will give a beneficial result if they grouped in a manner to secure higher returns
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three stocks, Maya has the highest standard deviation at 12.60 with an average return of 1.08. Harris has the lowest standard deviation at 5.8 with an average return of .58. The 28-year-old can accept a higher degree of risk than the 60-year-old, so he can invest in Maya with a highest average return. For the 60-year-old, I would suggest he invest in a lower volatile stock, such as Harris, because it involves less risk. However, with an option of investing in the S&P 500, I would suggest the retiree
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two common stocks. Firstly, we download 84 months data including returns, risk free and s&p500 index. Then we use return minus risk free to get the excess return for each company, because we need to use the excess return to graph the investment opportunity set and regression. For the second requirement, we need to compute the arithmetic mean, which is the historical average return. We find the Union Pacific average excess return is greater than the ConAgra. It means the Union Pacific can gain
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get an Expected Return of 6.25%: 4.75% + 3% - 1.5% = 6.25% Q2. The Policy Portfolio is the “neutral” guide of long-term asset allocation set by the HMC board and it serves as a benchmark of actual performance and as a metric against which compensation of portfolio managers is measured. The aim of the Policy Portfolio is to provide targets for different asset categories as a percentage of the total portfolio, in order to achieve a long-term expected return with the least risk possible. The policy
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between the expected return of asset and risky asset in the securities market. As one of prediction models based on the balance of risky asset expected return, CAPM elaborates on the formation of market equilibrium in the case of investors through Markowitz’ theory to investment management. (Pennacchi, 2008) It shows that a sample liner relation about expected return of asset and expected risks. In the model, beta is a significant parameter, since it measures the expected risks of assets. The Capital
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affect capital investment and the risk associated with the factor must be adjusted when determining the feasibility of the project. Identification of all the risk factors involved in the project is essential to determine the return required from the project. This process of identification of every risk factor that may arise becomes more complicated in case of an international project because the risk factors differ from country to country and there are some risk factors which are unique to a country
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A Resolution of the Distress Risk and Leverage Puzzles in the Cross Section of Stock Returns Thomas J. George e-mail:tom-george@uh.edu C. T. Bauer College of Business University of Houston Houston, TX 77240 and Chuan-Yang Hwang e-mail:cyhwang@ntu.edu.sg Division of Banking and Finance Nanyang Business School Nanyang Technological University Singapore 639798 April 2009 Acknowledgments: We are grateful to David Bates, Alex Boulatov, Gerry Garvey, Rick Green, Bing Han, Praveen Kumar, Scott Richardson
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