You are choosing between these four investments and you want to be 95% certain that you do not lose more than8.00% on your investment. Which investments could you choose?Average returnStandard Deviation of returns(Select the best choice below.)OA. All of the investments.OB. T-Bills only.C. Corporate Bonds and T-Bills.OD. Corporate Bonds and S&P 500.OE. Small Stocks and S&P 500.Small Stocks18.04%39.25%S&P 50011.71%19.76%Corporate Bonds6.16%T-Bills3.39%6.36%3.12%

1. Risk Tolerance and Investment Goals: You mentioned that you want to be 95% certain not to lose…

Answered: You are choosing between these four…

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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Eaton Electronic Company's treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity (also referred to as the required rate of return for common equity). Assume: Rf Km = 8% = 6% = В D₁ = $0.60 Po = $20 8 = 5% = 1.8 a. Compute K; (required rate of return on common equity based on the capital asset pricing model). Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Ki 0.10% b. Compute Ke (required rate of return on common equity based on the dividend valuation model). Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Ke %
The payoff table below indicates the returns (in RM thousands) of investments in stock, bond and fixed deposit under different economic situations. Type of Investment Stock Bond Fixed Deposit Table 1 Economic Situation Good 150 50 45 Stable 60 40 45 Poor -30 36 45 The probabilities of good, stable and poor economy are 0.3, 0.5 and 0.2, respectively. What is the best investment based on the expected monetary value criterion? Draw a decision tree.
You are choosing between these four investments and you want to be 95% certain that you do not lose more than 8.00% on your investment. Which investments could you choose? Small Stocks S&P 500 Corporate Bonds T-Bills Average return 18.37% 11.84% 6.47% 3.46% Standard Deviation of returns 38.79% 20.01% 6.98% 3.14% (Select the best choice below.) A. All of the investments. B. Corporate Bonds and S&P 500. C. Small Stocks and S&P 500. D. Corporate Bonds and T-Bills. E. T-Bills only.
. The market value of common stock IS primarıly based on A. the firm's future earnings C. Total assets. B. Book value. D. retained earmings 8. AT-bill pays 5 percent rate of return. Would risk-averse investors invest inarisky portfolio that pays 8 percent with a probability of 40 percent or 3 percent with a probability of 60 percent? A. Yes, because they are rewarded with a risk premium. B. No, because they are not rewarded with a nisk premium. C. No, because the risk premium is smal D. Cannot be determined. e. None of the above. 9. A firm has a P/E ratio of 18 and a ROE of 13% and a market to book value of A.0.64 B. 0.92 C. 2.34 D. 1.56 E. none of the above 10. Your opinion is that security A has an expected rate of return of 0.125. It has a beta of 1.5. The risk-free rate is 0.04 and the market expoctod rate of return is 0.11. According to the Capital Asset Pricing Model, this security is A. Underpriced. D. cannot be determined from data provided. C. fairly priced. E.…
n the formula ke >= (D1/P0) + g, what does (D1/P0) represent? Select one: a. The expected capital gains yield from a common stock b. The interest payment from a bond c. The expected dividend yield from a common stock d. The dividend yield from a preferred stock
1. You estimate the Fama-French 3-factor model for the two stocks, A and B, and find the following coefficients. You also estimate risk premiums for each factor. Calculate the cost of equity capital (i.e., expected rate of return) for each company using the 3-factor APT model. The risk-free rate is 4%. Stock Mkt A B Risk premiums 1.1 1.0 5% SMB -1.2 -2.0 HML -1.0 -1.5 3%
Using the equity asset valuation model (CAPM) equation, determine the required return for the shares of the following companies, if the market return is 7.50% (Rm = 7.50%) and the risk-free asset return is 1.25% (RF = 1.25%). You must show all counts. Stock Beta SKT 0.65 COST 0.90 SU 1.42 AMZN 1.57 V 0.94
Sections C through F please
1. The percentage measure of how well an investment is doing and is often used as the basis for comparison with other investments is the _____. A. dividend yield B. price-earning ratio C. return on equity D. return on investment 2. Ricardo invested a lump sum of $11,500 in a mutual fund with an offer price of $12.33. How many shares did he purchase? (Round to the nearest thousandth.) A. 839.206 B. 932.685 C. 1,073.401 D. 1,352.035
Hh2.
The asset of company X have a beta equal to 1. Assume that company’s debt has a beta to 0.5 and that X’s equity has a Beta equal to 2, consider an investor who holds 10% of company’s debt and 10% of the company’s equity, the beta of the investor’s portfolio is equal to? A. 0.25 B. 1 C. 1.25 D. 0.1
Determine the cost of common stock (equity). The T-Bill rate is 5.2%. The Market Return is 12.7%. What is the company's cost of equity capital if the company has a beta of 1.27? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity %

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