Consider the following information for the financial asset H.State of the WorldProbability ofRates of Return (%)OccurrenceAsset HAsset JRecession0.15-4.0012.00Normal0.558.006.00Expansion0.3012.002.00The expected return for asset H isa. 7.80%b. 6.60%c. 7.4%d. 8.6%

The above answer can be explained as under - Expected return for Asset H = Probability of…

Answered: Consider the following information for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The preferred stock of North Coast Shoreline pays an annual dividend of $1.70 and sells for $20.24 a share. What is the rate of return on this security? OA 5.95 percent B. 7.08 percent OC.8.40 percent OD. 11.90 percent OE 14.17 percent
BN10.1 When evaluating the Benefit of a Potential Project, is it okay to look at the Expected Value & ignore the Variance?
Your company has a new project to be considered. You are given the following information on the best guess of related outcomes for the project. The cost of developing and market testing the product over the next year is $225 million. If the test is successful, which has a 65% chance, the company will spend another $800 million to put the production capabilities in place. The expected cash flows after tax for a successful project are $225 million each year for the next six years with a probability of.8; there is a 20% chance of a zero NPV. If the test fails the cash flows associated with continuing through the sixth year are $125 million per year after tax. The company uses a 12% discount rate for these types of projects. Draw and label the decision tree. Explain what decisions management would make at each node upon their realization.
In a financial market a stock is traded with a current price of 50. Next period the price of the stock can either go up with 30 per cent or go down with 25 per cent. Risk-free debt is available with an interest rate of 8 per cent. Also traded are European options on the stock with an exercise price of 45 and a time to maturity of 1, i.e. they mature next period. Find prices of Arrow-Debreu securities.
If there is a $120,000 investment on a project and the profits generates $180,0000, what is the return on investment (ROI)? 50% 40% 40% 60% 30%
a. A project costs $10 up front and has net benefits of $15 with probability 0.8 at the end of the second year and otherwise returns nothing. The discount rate is 0.035. What is the NPV? b. At what probability of returning $15 after year 2 would the ENPV be 0?
A project involved initial construction costs of $2.5 million. The annual rate of economic depreciation for that construction class is 0.008. The project is expected to terminate in 25 years. The expected annual rate of inflation is 0.025. a. Estimate the horizon value at time t=25 owing to the remaining value of this asset. b. If the real discount rate is 0.035, what is the present value of the horizon value from (a)?
Suppose XYZ Corporation's stock price rises or falls with equal probability by $25 each month, starting where it ended the previous month. What is the value of a three month at the-money European call option on XYZ's stock if the stock is priced at $100 when the option is purchased?$______
A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.
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Consider the following information for the financial asset H. State of the World Probability of Rates of Return (%) Occurrence Asset H Asset J Recession 0.15 -4.00 12.00 Normal 0.55 8.00 6.00 Expansion 0.30 12.00 2.00 The expected return for asset H is a. 7.80% b. 6.60% c. 7.4% d. 8.6%