Varma Investment Services must develop an investment portfolio for a new client. As an initial investment strategy, the new client would like to restrict the portfolio to a mix of two stocks: Stock Price/Share Estimated Annual Return (%) AGA Products $ 50 6 Key Energy 100 10 The client wants to invest $50,000 and established the following two investment goals. LO 1, 2
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Varma Investment Services must develop an investment portfolio for a new client. As an initial investment strategy, the new client would like to restrict the portfolio to a mix of two stocks:
Stock
Price/Share
Estimated Annual Return (%)
AGA Products
$ 50
6
Key Energy
100
10
The client wants to invest $50,000 and established the following two investment goals. LO 1, 2
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- The CEO of Coral Gables Corp. was reviewing the returns of the company's sizeable investment portfolio in the last five years during a period of extreme volatility. He noted the 5 year sequence of investment returns as follows: +30%, -20%, +30%, -20%, +30%. He then calculated the arithmetic average return, but his CFO noted that since he had ignored the compounding effect he was wrong. By how much was he wrong? (Hint: Calculate the annual arithmetic average return over the five years less the average geometric (compounded) return.) (Round intermediate calculation to 2 decimal places, e.g. 52.75.) O 1.59% O 3.25% ○ 2.95% ○ 9.39%Conoly Co. has identified an investment projectwith the following cash flows. If the discount rate is 10 percent, what is the present valueof these cash flows? What is the present value at 18 percent? At 24 percent?Year Cash Flow1 $ 9602 8403 9354 1,350West Company’s contribution format income statement for March 2020 is givenbelow:Sales (15,000 units X $30 per unit) $450,000Variable expenses 315,000Contribution margin 135,000Fixed expenses 90,000Net operating income $ 45,000The industry in which West Company operates is quite sensitive to regularmovements in the economy. Thus, profits vary considerably from year to yearaccording to general economic conditions. The company has a large amount ofunused capacity and is studying ways of improving profits.Required:The company CEO has asked you as a Senior Manager to evaluate the belowsituations with recommendations:1- New equipment has come onto the market that would allow WestCompany to automate a portion of its operations. Variable expenseswould be reduced by $9 per unit. However, fixed expenses wouldincrease to a total of $225,000 each month. How Net Income wouldappear if the new equipment were purchased. As a Senior Manager,what factor/s would be paramount in your mind deciding…
- Fred has been told that diversifying his investments will significantly reduce risk. He hastherefore invested in two stocks. His portfolio consists of a $1 500 000 investment in DrugsLimited and $750 000 invested in shares of Pharmaceuticals Limited.Economy Probability ReturnsDrugs Limited PharmaceuticalsLimitedBoom 0.4 12% 19%Normal 0.5 8% 11%Recession 0.1 2% -4% i. What is the expected return on Fred’s portfolio? ii. Advise Huron as to the effectiveness of his diversification strategy.Consider an investment project with the following cash flows: N Cash Flow 0 -$5,0001 $02 $4,8403 $1,331ComputcthelRRforthisinvestment.lsthisprojectacceptablcatMARR = 10%?Pls help ASAP for both
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- 1.State the problems facing the manager/key person 2.Identify and link the symptoms and root causes of the problems 3.Differentiate short term from long term problems 4.Conclude with the decision facing the manager/key person9.3 Consider another set of net cash flows: Year Cash Flow ($) 0 2,000 1 2,000 2 0 3 1,500 4 2,500 5 4,000 What is the net present value of the stream if the opportunity cost of capital is 10 percent? What is the value of the stream at the end of year 5 if the cash flows are invested in an account that pays 10 percent annually? What cash flow today (time 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of year 5? (Assume that the cash flows for years 1 through 5 remain the same.)1. If today stock is trading for $60 a share. You are confident that the stock price will experience a change in the value of over 30% relative to the current price in either upward or downward direction over the course of next year. Today you decide to transact in either one or two stocks maturing in one year. The strike price of both options is $60 a share. The call option premium is $6 and put option premium is $5. Given this information and your belief, you should _______. a. buy 2 calls b. buy 1 call and sell 1 put c. sell 1 call and 1 sell put d. buy 1 call and buy 1 put e. sell 2 puts Please explain