midterm practice 9

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University of Mississippi *

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442

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Economics

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Jan 9, 2024

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docx

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Uploaded by Educator142365

Question 1: Time Value of Money (10 points) Suppose you have a portfolio with 60% invested in Stock X, which has an expected return of 12%, and 40% invested in Stock Y, which has an expected return of 8%. Calculate the expected return of the portfolio. Additionally, if the standard deviation of Stock X is 15% and the standard deviation of Stock Y is 10%, calculate the portfolio standard deviation assuming perfect positive correlation. Question 3: Capital Asset Pricing Model (CAPM) (10 points) Given the following information: Risk-free rate = 4% Market risk premium = 6% Beta of the stock = 1.5 Calculate the required rate of return using the Capital Asset Pricing Model (CAPM) for the given stock. Question 5: Options and Derivatives (10 points) You hold a call option with a strike price of $50 on a stock currently trading at $55. The option has 3 months until expiration. Calculate the intrinsic value and time value of the call option. Also, explain the potential strategies you might consider if the stock price is expected to increase further. Question 6: Financial Ratios (10 points) Consider a company with the following financial information: Net Income: $500,000 Total Assets: $2,000,000 Total Liabilities: $800,000 Shareholders' Equity: $1,200,000

Calculate the Return on Equity (ROE) for the company and provide a bri User please generate a practice midterm on financial economics ChatGPT Certainly! Here's a practice midterm on financial economics: Financial Economics Midterm Practice Instructions: Answer all questions. Each question is worth 10 points. Show all calculations and reasoning. Write clearly and concisely.

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