a. Richard owns $33,000 worth of XYZ's stock. What rate ofreturn is he expecting?Rate of returnb. Calculate the cash flows and rate of return by investing inABC, and using homemade leverage, how Richard couldgenerate exactly the same?Total cash flowRate of returnABCXYZ%c. What is the cost of equity for ABC? What is it for XYZ?Cost of equityABCXYZ$d. What is the WACC for ABC? For XYZ?WACC% ABC Co. and XYZ Co. are identical firms in all respects exceptfor their capital structure. ABC is all-equity financed with$550,000 in stock. XYZ uses both stock and perpetual debt inequal proportions; its stock is worth $275,000 and the interestrate on its debt is 10 percent. Both firms expect EBIT to be$59,000 every year, forever. Ignore taxes. (Do not roundintermediate calculations. Round the final answers to 2decimal places. Omit $ and % sign in your response.)

We have to apply the MM hypothesis and propositions illustrating the principles that in the absence…

a. Richard owns $33,000 worth of XYZ's stock. What rate of return is he expecting? Rate of return b. Calculate the cash flows and rate of return by investing in ABC, and using homemade leverage, how Richard could generate exactly the same? Total cash flow Rate of return ABC XYZ % C. What is the cost of equity for ABC? What is it for XYZ? Cost of equity ABC XYZ WACC $ % d. What is the WACC for ABC? For XYZ? %

a. Richard owns $33,000 worth of XYZ's stock. What rate of return is he expecting? Rate of return b. Calculate the cash flows and rate of return by investing in ABC, and using homemade leverage, how Richard could generate exactly the same? Total cash flow Rate of return ABC XYZ % C. What is the cost of equity for ABC? What is it for XYZ? Cost of equity ABC XYZ WACC $ % d. What is the WACC for ABC? For XYZ? %

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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Given Analysis of unlevered equity beta with risky debt beta = .30 Firm1 (F1) Firm2 (F2) Firm3 (F3) Company Name b. Solution Levered Equity Betas Analysis of Sterling Analysis based on simple average of unlevered equity betas beta unlevered D/E 1.79 1.98 1.71 0.20 Tax Rate Debt/Equity Assumed Capitalization Debt Betas 0.30 0.30 0.30 0.31 0.24 0.22 beta debt 38% 0.30 Average D/E 0.20 a. Solution: Unlevered Equity Betas beta levered
6. What are the realized returns for the stock market, for Small Companies, Large Companies; long term Bonds, Long Term Gov Bonds, and US T Bills? What investment portfolio would select (do not include names of mutual funds or stocks, just overall types of investments.)?
Unit Activity: Mathematical Models and Investments Each question is worth four points. Part A Ralph wishes to protect his investment from Inflation. He buys a zero-coupon bond. Why is this investment a bad choice for Ralph? BIUX² X₂ 15px Space used (includes formatting): 0 / 15000 Space used (includes formatting): 0/ 15000 !!! O IWI ויוי 三三図 ▼ 田く Part B Allison buys a Greek Treasury bond. The Greek government announces that it is defaulting on its debt. What options does Allison have to recover her money? BIUX² X₂ 15px A A 注三三三三 8 of 11 O Apr 15 5:46 Save & Ex PI
Bill buys $500 worth of the T-bill. O Bill invests $1000 in the risky portfolio. Bill borrows $250 at the risk free rate. QUESTION 13 portroll Which of the following statements is correct? O All portfolios on the capital allocation line have the same Sharpe ratios O Short selling the risk-free asset is equivalent to lending money at the risk free rate O In a portfolio, asset weights must sum up to 0 O the capital allocation line is downward sloping QUESTION 14
Assume you are advising an investor from Oman, who is interested in investing his money locally or internationally. As a portfolio manager you are advising your client the following asset allocation : 1. Fixed Income and Bonds 50% and 2. Equities 50% Mention ways in which you can invest in each asset class, and explain the investment you selected in brief ( in two lines) (example: in the bond asset class, debentures is one type of investment) For each asset class three types of investments and their related explanation is required.
man.3 Imagine you are a CFO of a company that is publicly traded in stock exchange and has one of the smallest market capitalisations among all the companies available at the stock market. Assume that a risk-free rate is 2%, average return on broadly defined stock index is 12% and according to your computations the company has a market beta of 1.5. Estimate the cost of equity capital for your company and discuss, in the light of the empirical findings on the performance of CAPM and the existing anomalies, the quality of your investment decisions when using this value for the purpose of project evaluation. The expected return on the firm's equity is:
Styles QUESTION 3 Alan, a chartered financial analyst (CFA), is willing to invest two stocks, Bloom stock and Stars stock. He has collected the data on both stocks from Bursa Malaysia. The data as follows: Stock Stock Bloom Stars State of Probability Return (%) Return (%) Economy Recession 0.35 -20 30 Normal 0.40 10 20 Boom 0.25 70 50 Alan has RM100,000 and he plans to invest RM60,000 in Bloom and the remainder in Stars. The market price for Bloom and Stars are RM12 and RM25 respectively. Beta for each stock is 1.2 and 0.5. Required: C. If Alan decide to invest all 100% in Bloom stock, criticise your findings. w ww m D. Evaluate the beta portfolio and each of the stocks. Assess the riskiness of the stocks based on standard deviation and the beta.
Investors can allocate their wealth between (i) the risk-free asset, and (ii) one of the three risky assets as shown below. For example, 20% in risk-free and 80% in A, or 30% in risk-free and 70% in B, or 40% in risk- free and 60% in C, and so on. Risky Asset E(r) A B Stdev 20% 25% 30% 35% 40% 45% The risk-free rate is 5%. If investors target an expected annual return of 30%, what is the lowest stdev that can be achieved among all the possible allocations? Show your answer in % and round to two decimals (e.g. xx.xx%).
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