1. According to the information in the table given below, fill in the blanks with correct option: Moderate Risk-Profitability / Low Risk-Profitability / High Risk-Profitability Asset Maturity Financing Maturity Long Term Short Term Short Term 1(?) 2(?) Long Term 3(?) 4(?)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Financial management 

QUESTIONS
1. According to the information in the table given below, fill in the blanks with correct option:
Moderate Risk-Profitability / Low Risk-Profitability / High Risk-Profitability
Asset Maturity
Financing Maturity
Long Term
Short Term
Short Term
1(?)
2(?)
Long Term
3(?)
4(?)
2. Delphi Products Corporation currently pays a dividend of $2 per share, and this dividend is
expected to grow at 15% percent annual rate for many years to come. The corporation has
found an index of systematic risk of 1.60. Short-term Treasury securities rate is 10% and the
expected return on the market portfolio is 14%. What will happen to the intrinsic value per
share? If the stock is currently selling for $187, is this stock overvalued or undervalued and
why?
NOTE: PLEASE SHOW HOW YOU COMPUTE EACH OF THE ITEMS.
3. You buy the 6 percent coupon bond today and the price of the bond is $1.012. Par value of
the bond is $1.000. The maturity of the bond is 3 years.
a) According to the information given above, what will be the bond's yield to maturity?
b) If the bond has currently 3 years left to maturity and suppose that by the end of the year,
interest rates have changed and the bond's yield to maturity is now only 4%. What will be the
bond's rate of return?
NOTE: PLEASE SHOW HOW YOU COMPUTE EACH OF THE ITEMS.
4. According to the information given below, compute the correlation coefficient and the
covariance coefficient between stock A and stock B.
Standard deviation of the portfolio (stock A and stock B) : 0.37
Standard deviation of the stock A
:0.38
Standard deviation of the stock B
:0.43
Weight for stock A
:0,60
Weight for stock B
:0.40
NOTE: PLEASE SHOW HOW YOU COMPUTE EACH OF THE ITEMS.
Transcribed Image Text:QUESTIONS 1. According to the information in the table given below, fill in the blanks with correct option: Moderate Risk-Profitability / Low Risk-Profitability / High Risk-Profitability Asset Maturity Financing Maturity Long Term Short Term Short Term 1(?) 2(?) Long Term 3(?) 4(?) 2. Delphi Products Corporation currently pays a dividend of $2 per share, and this dividend is expected to grow at 15% percent annual rate for many years to come. The corporation has found an index of systematic risk of 1.60. Short-term Treasury securities rate is 10% and the expected return on the market portfolio is 14%. What will happen to the intrinsic value per share? If the stock is currently selling for $187, is this stock overvalued or undervalued and why? NOTE: PLEASE SHOW HOW YOU COMPUTE EACH OF THE ITEMS. 3. You buy the 6 percent coupon bond today and the price of the bond is $1.012. Par value of the bond is $1.000. The maturity of the bond is 3 years. a) According to the information given above, what will be the bond's yield to maturity? b) If the bond has currently 3 years left to maturity and suppose that by the end of the year, interest rates have changed and the bond's yield to maturity is now only 4%. What will be the bond's rate of return? NOTE: PLEASE SHOW HOW YOU COMPUTE EACH OF THE ITEMS. 4. According to the information given below, compute the correlation coefficient and the covariance coefficient between stock A and stock B. Standard deviation of the portfolio (stock A and stock B) : 0.37 Standard deviation of the stock A :0.38 Standard deviation of the stock B :0.43 Weight for stock A :0,60 Weight for stock B :0.40 NOTE: PLEASE SHOW HOW YOU COMPUTE EACH OF THE ITEMS.
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