Wall Street performs a sort of “financial alchemy” enabling the individual to benefit from institutions lending money to them, according to Adam Davidson, cofounder of NPR’s “Planet Money.” Individuals can invest small amounts of their money in a 401(k), pooling their capital and spreading the risk.If you invested in Fidelity New Millennium, FMILX, how much would you pay for 80 shares if the 52-week high is $32.26, the 52-week low is $26.38, and the NAV is $31.88?**Note:** Round your answer to the nearest cent.**Amount paid: [________]**

In this question, we will calculate how much you would pay for 80 shares of Fidelity New Millennium…

Answered: Wall Street performs a sort of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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“Hello! My name is Michael and I am seeking your advice and knowledge in finance, specifically, modern portfolio theory. I heard a phrase once that was attributed to Don Quixote: “It is the part of a wise man not to venture all his eggs in one basket” (Miguel de Cervantes). I did not follow this advice and invested $10,000 in First Solar (FSRL) 11 years ago (and kept investing in this company for that period). Solar energy was (and I believe it is) the future. Who can disagree with that? However, First Solar’s 11-year return was -60%! Yes, I have lost money because I invested all my money into just one company, which I thought would provide me with the big return I wished for. 1.What did I do wrong? I researched and analyzed First Solar and its prospects were outstanding 11 years ago and yet its average return has been negative since then. 2.Is there anything I can do now? 3.What would you recommend I do?”
A privately held corporation, is making plans for future investments that can increase growth. The company’s manager has recommended that the company “go public” by issuing common stock to raise the funds needed to support the growth. The current owners, who founded the firm, are worried that control of the firm will be diluted by this strategy. If the company undertakes an IPO, it is estimated that each share of stock will sell for $6.25, the investment banking fee will be 22 percent of the total value of the issue. The founders now hold all of the company’s stock: 8 million shares. If the company issues 8 million shares, what proportion of the stock will the founders own after the IPO?
You founded your firm with a contribution of $700,000, receiving 1,000,000 shares of stock. Since then, you sold 5,000,000 stocks to Angel Investors. Now you are considering raising more capital from a Venture Capitalist. They will invest $7,000,000 and would receive 5,000,000 newly issued shares. What is the post-money valuation? Express the terms of your answer completely and in strictly numerical terms. For example: If your answer is one million dollars, write: 1000000.
Finding the WACC. Monica is the CFO of Cooking for Friends (CFF) and uses the pecking order hypothesis philosophy when she raises capital for company projects. Currently, she can borrow up to $450,000 from her bank at a rate of 7.75%, float a bond for $800,000 at a rate of 10%, or issue additional stock for $1,500,000 at a cost of 15%. What is the WACC for CFF if Monica chooses to invest A. $900,000 in new projects? B. $200,000 in new projects? C. $2,750,000 in new projects?
11) The earnings per share of Greater-Fool-Theory (GFT), a cryptocurrency exchange, are $6. The median P/E ratio in the cryptocurrency exchange sector (excluding GFT) is 80. a. IFGFT has 20,000 shares outstanding, estimate the value of its equity. b. How would the P/E ratio in the cryptocurrency exchange sector change (increase, decrease, or stay the same) if the sector's growth prospects declined (i.e., if expectations of future growth are lower)? Please explain your answer for full credit. E Foc MacBook Pro I A
You have risen through the ranks of a coffee comany, from the lowly green-apron barista to the coveted black apron, and all the way to CFO. A quick internet check shows that your company's beta is 0.68. The risk-free rate is 5.8% and you believe the market risk premium to be 5.7%. What is your best estimate of investors' expected return on your company's stock (its cost of equity capital)? The expected return is %. (Round to two decimal places.)
Formulate but do not solve the problem. A private investment club has $450,000 earmarked for investment in stocks. To arrive at an acceptable overall level of risk, the stocks that management is considering have been classified into three categories: high-risk, medium-risk, and low-risk. Management estimates that high-risk stocks will have a return rate of 15%; medium-risk stocks, 11%; and low-risk stocks, 5%. The members have decided that the investment in low-risk stocks should be equal to the sum of the investments in the stocks of the other two categories. Determine how much the club should invest in each type of stock if the investment goal is to have a return of $45,000 on the total investment. (Assume that all the money available for investment is invested. Let x, y, and z denote the amount, in dollars, invested in high-, medium-, and low-risk stocks, respectively.) =450,000 =z =45,000
Your friend told you that she invested $1,000 in a portfolio of large-company stocks 5 years ago and also reinvested the dividends. Herinvestment grew to $3,456 as at today. Had she invested that same amount in a Government of Grenada bond she would have received $2,500even if she reinvested the 10 percent coupons paid on the bonds. REQUIRED How can you avoid the value of your stock from going down?
A big pharmaceutical company, DRIg, has just announced a potential cure for cancer. The stock price increased from $5 to $138 in one day. A friend calls to tell you that he owns DRIg. You proudly reply that you do, too. Since you have been friends for some time, you know that he holds the market, as do you, and so you both are invested in this stock. Both of you care only about expected return and volatility. The risk-free rate is 3%, quoted as an APR based on a 365-day year. DRIg made up 0.82% of the market portfolio before the news announcement. a. On the announcement your overall wealth went up by 1.4% (assume all other price changes cancelled out so that without DRIg, the market return would have been zero). How is your wealth invested? b. Your friend's wealth went up by 2.5%. How is his wealth invested?
You are an investor who wants to maximize your profits, and to avoid risks of loss, you have diversified your money by investing it in 5 different banks Banco Azteca, Banamex, Inbursa, Banorte and Santander. Each of the banks has created its investment funds also diversified in simple interest instruments (fixed term), compound interest (investment accounts), annuities (short-term payroll loans), bonds (cetes) and paper money (dollars). You decided to invest in: Banco Azteca $5000, Banamex $10000, Inbursa $7000, Banorte $8500 and Santander $20000. Leaving you with $3,700, of the sum of the remaining uninvested cash flow, for daily unforeseen events. Banks offer you the following investments that combine several investment instruments. Investment portfolios: You must create a combination of 3 of the 5 investment portfolios, which maximizes your investment in 2 years. What should those three portfolios be and how much should you invest in each of them?
You have started a company and are in luck—a venture capitalist has offered to invest. You own 100% of the company with 4.56 million shares. The VC offers $1.03 million for 820,000 new shares. b. What is the post-money valuation? c. What fraction of the firm will you own after the investment?
G

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