Bill is looking to purchase one of two potential investments. He is considering a 12-year 10% coupon bond issued by YakBak that is currently selling for $975.61. His other option is to buy stock in Skippylnc. Skippy just issued a $1.50 dividend and expects to grow at 6.5%, Skippy's current stock price is $35.64. If both investments are fairly priced and Bill intends to hold the investment indefinitely, which offers a higher return? O The bond, 5.18% -4.48% The bond, 10.00 % -4.48% The stock, 10.71% -10.00 % The stock, 10.98% 10.36%

Bill is looking to purchase one of two potential investments. He is considering a 12-year 10% coupon bond issued by YakBak that is currently selling for $975.61. His other option is to buy stock in Skippylnc. Skippy just issued a $1.50 dividend and expects to grow at 6.5%, Skippy's current stock price is $35.64. If both investments are fairly priced and Bill intends to hold the investment indefinitely, which offers a higher return? O The bond, 5.18% -4.48% The bond, 10.00 % -4.48% The stock, 10.71% -10.00 % The stock, 10.98% 10.36%

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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Your stockbroker, John Smith, calls you with a hot stock tip to buy SMITH Inc. The stock is currently selling for $25 a share. You gather the following data to evaluate Smith's recommendation. The risk free rate is 3%, and you demand a 14% return on the market portfolio. SMITH's current dividend is $2.50 a share. You decide to get other necessary estimates from a third-party, Rocky Enterprises. Rocky has estimated that SMITH's beta is 2.0 and that the stock's dividend will grow at a constant 10 percent rate. Based on your estimates, is Smith's recommendation to buy SMITH a good one? What do you think the stock is worth?
Jaleel is holding some Tesla shares (NASDAQ: TSLA) and The TSLA stocks are currently trading at $985 on the Nasdaq. Given TSLA stocks are very volatile, Jaleel wishes to protect the value of his investments. He seeks your advice on using option contracts and presents a list of options for you to choose from. Assume the number of underlying shares per contract is 100 shares. Strike Call premium Moneyness Put premium Moneyness $975 $10.01 $0.01 $980 $4.45 $0.04 $985 $0.63 $0.99 $1005 $0.05 $20.48 (i) Please specify the moneyness of the above options. Are they in the money, at the money or out of the money? (ii) Identify what kind of risk that Jaleel is facing and to hedge this risk, which option would you suggest that Jaleel should purchase? Why?
You have $260,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14 percent, and Stock L, with an expected return of 11.1 percent. If your goal is to create a portfolio with an expected return of 12.5 percent, how much money will you invest in Stock H and in Stock L?
You have a $5 million portfolio consisting of a $250,000 investment in each of 20 different stocks. The portfolio has a beta of 1.2. You are considering selling $500,000 worth of one stock with a beta of 0.8 and using the proceeds to purchase another stock with a beta of 1.6. What will the portfolio’s new beta be after these transactions? Im stuck
Fernway Athletic Club plans to offer its members preferred stock with a par value of $100 and an annual dividend rate of 5%. What price should these members be willing to pay for the returns they want? a. Theo wants a return of 10%. b. Jonathan wants a return of 11%. c. Josh wants a return of 16%. d. Terry wants a return of 19%. a. If Theo wants a return of 10%, what price should he be willing to pay?
1. What are some comparative advantages of investing in the following? a) Unit investment trusts. b) Open-end mutual funds. c) Individual stocks and bonds that you choose for yourself. 2. You are considering two alternative two-year investments: You can invest in a risky asset with a positive risk premium and returns in each of the two years that will be identically distributed and uncorrelated, or you can invest in the risky asset for only one year and then invest the proceeds in a risk-free asset. Which of the following statements about the first investment alternative (compared with the second) are true? a) Its two-year risk premium is the same as the second alternative. b) c) d) e) The standard deviation of its two-year return is the same.Its annualized standard deviation is lower.Its Sharpe ratio is higher.It is relatively more attractive to investors who have lower degrees of risk aversion. 3. Tabulate and draw the investment opportunity set of the two…
your friend tells you he is going to start investing and would like to earn a 10% return. He says stocks make him nervous, so he will only be investing 10% in stocks and the remaining 90% will be invested in bonds. what would you say to him.
Rachel is a financial investor who actively buys and sells in the securities market. Now she has aportfolio of all blue chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and$5,500 of Share D.Required:(a) Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflationrate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Model (CAPM). (b) Following is forecast for economic situation and Rachel’s portfolio returns next year, calculate theexpected return, variance and standard deviation of the portfolio. State of economy Probability Rate of returnsMild Recession 0.35 - 5%Growth 0.45 15%Strong Growth 0.20 30%
A wealth management company contacted Chan and would like to introduce a new stock portfolio to him. This portfolio will consist of three stocks only: X with an expected return of 12%; Y with an expected return of 5%; and Z with an expected return of 2%. Chan is a return-chaser so he plans to invest $2,500 in stock X, $2,000 in stock Y, and $500 in stock Z. What return should Chan expect to earn from this portfolio? O a) 10% O b) Cannot be determined c) 12.2% d) 8.20% e) 15%

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