5. Consider the following information and calculate the required rate of return for theScientific Investment Fund. The total investment in the fund is $2 million.Investment$ 200,000300,000500,0001,000,000The market required rate of return is 15% and the risk-free rate is 7%.StockABCDBeta2.000.501.250.75badI

According to Capital Asset Pricing model ,k = Rf + [ * (Rm - Rf) ]where ,k = required rate of…

5. Consider the following information and calculate the required rate of return for the Scientific Investment Fund. The total investment in the fund is $2 million. Stock Beta 2.00 0.50 1.25 0.75 The market required rate of return is 15% and the risk-free rate is 7%. ABCD А с Investment $ 200,000 300,000 500,000 1,000,000

5. Consider the following information and calculate the required rate of return for the Scientific Investment Fund. The total investment in the fund is $2 million. Stock Beta 2.00 0.50 1.25 0.75 The market required rate of return is 15% and the risk-free rate is 7%. ABCD А с Investment $ 200,000 300,000 500,000 1,000,000

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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Am. 121.
14. You are interested in an investment fund with an expected annual rate of return of 15% and a standard deviation of 12% a year. If you invest $2 million in this fund, what is 95% VaR? In other words, there is 95% confidence that you will not lose more than ( ) over one year. How much money should be in the parentheses? Assume that the returns on the fund follow a normal distribution.
A risky $420,000 investment is expected to generate the following cash flows: Year 1 2 3 4$ 102,700 $ 163,030 $ 160,824 $ 135,200 If the firm’s cost of capital is 12 percent, should the investment be made?. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar.NPV: $ Should The investment be made? An alternative use for the $420,000 is a four-year U.S. Treasury bond that pays $25,200 annually and repays the $420,000 at maturity. Management believes that the cash inflows from the risky investment are equivalent to only 70 percent of the certain investment, which pays 6 percent. Should the investment be made? Use Appendix B to answer the question. Do not round other intermediate calculations. NPV: $ Should The investment be made?
Trestle Corporation wants to purchase a new finishing machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $95,000 (book value is $75,000). The new machine will cost $635,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $25,000 will be required if the new machine is purchased. The investment is expected to net $80,000 in before tax cash inflows during the first year of operation and $235,000 each additional year of use. These cash flows do not include depreciation and are recognized at the end of each year. The working capital investment will not be recovered at the end of the asset's life. The company's tax rate is 32%.
J&R Wealth is considering an investment with the following cash flow: ΕΟΥ Cash Flow $500,000 $92,500/year $50,000 1-10 10 If MARR is 12%, what is the ERR? Is this project acceptable?
Consider an MNC that is exposed to the Turkish Lira (L) and the Brazilian Real (R). Assume 40% of the MNC's funds are in Liras and 60% are in Reals. The standard deviation of exchange movements is 10% for L and 15% for R. The correlation coefficient between the Lira and the Real is 0.45. Based on this Information, compute the standard deviation of this portfolio of funds. O 12.94% O 11.38% 10.35% O 7.26 % 08.04%
Answer the following lettered questions on the basis of the information in this table: a. If the interest-rate cost of funds is 8 percent, what will be the optimal amount of R&D spending for this firm?b. Explain why $20 million of R&D spending will not be optimal.c. Why won’t $60 million be optimal either?
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow: −$7,100 $1,000 $2,200 $1,400 $1,400 $1,200 $1,000 Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Should it be accepted or rejected?multiple choice accepted rejected
4. Suppose you are a money manager of a $10 million investment fund. The fund is invested in three assets with the following investments and betas: Investment Beta 1.80 0.75 1.20 The remainder is invested in T-bills (risk free asset) with 3% return. a. If the market expected rate of return is 9% what is the fund's expected rate of return? b. Using Funds A and B, create a portfolio (report the portfolio weights and $ investment out of $10 million) with a 0.92 beta. Stock A B C $3,000,000 2,000,000 4,000,000
(Capital Asset Pricing Model) Johnson Manufacturing, Inc., is considering several investments. The rate on Treasury bills is currently 7.5 percent, and the expected return for the market is 10.5 percent. What should be the expected rate of return for each investment (using the CAPM)? Security A B C D Beta 1.62 1.02 0.71 1.34 a. The expected rate of return for security A, which has a beta of 1.62, is%. (Round to two decimal places.)
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A firm wants to start a project. A team of financial analysts estimated the following cash flows year cash flow 0 -$100,000 1 55,000 2 43,000 3 45,000 Suppose that the discount rate (interest rate) is 12%. The profitability index (PI) is Group of answer choices 15,416.59 1.15 0.87 2.15

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