Your eccentric Aunt Claudia has left you $50,000 in BP shares plus $50,000 cash. Unfortunately, her will requires that the BP stock not be sold for one year and the $50,000 cash must be entirely invested in one of the stocks shown below. BHP Agricultural Billiton BP Siemens Nestlé Sony Sanofi Bank BHP Billiton 1.00 0.34 0.05 0.37 0.55 0.47 0.44 BP 1.00 0.34 0.16 0.14 0.31 0.12 Siemens 1.00 0.09 0.10 0.02 0.10 Nestlé 1.00 0.33 0.51 0.06 Sony 1.00 0.20 0.30 Sanofi 1.00 0.31 Agricultural Bank 1.00 Standard deviation (%) 23.60 27.90 9.09 17.20 26.70 29.50 24.80 a. Calculate the portfolio variance for seven different portfolios. Note: Use decimals, not percents, in your calculations. Do not round intermediate calculations. Enter your answers as a decimal rounded to 5 places. b. What is the safest attainable portfolio under these restrictions?

Your eccentric Aunt Claudia has left you $50,000 in BP shares plus $50,000 cash. Unfortunately, her will requires that the BP stock not be sold for one year and the $50,000 cash must be entirely invested in one of the stocks shown below. BHP Agricultural Billiton BP Siemens Nestlé Sony Sanofi Bank BHP Billiton 1.00 0.34 0.05 0.37 0.55 0.47 0.44 BP 1.00 0.34 0.16 0.14 0.31 0.12 Siemens 1.00 0.09 0.10 0.02 0.10 Nestlé 1.00 0.33 0.51 0.06 Sony 1.00 0.20 0.30 Sanofi 1.00 0.31 Agricultural Bank 1.00 Standard deviation (%) 23.60 27.90 9.09 17.20 26.70 29.50 24.80 a. Calculate the portfolio variance for seven different portfolios. Note: Use decimals, not percents, in your calculations. Do not round intermediate calculations. Enter your answers as a decimal rounded to 5 places. b. What is the safest attainable portfolio under these restrictions?

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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9 es Finch, Incorporated, is debating whether or not to convert its all-equity capital structure to one that is 20 percent debt. Currently, there are 6,000 shares outstanding and the price per share is $40. EBIT is expected to remain at $12,000 per year forever. The interest rate on new debt is 7 percent, and there are no taxes. a. Allison, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What will Allison's cash flow be under the proposed capital structure of the firm? Assume she keeps all 100 of her shares. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? Note: Do not round intermediate…
You are an accountant for Davanzo Company. The president of the company calls you into her office and says, “I want to ask you about two issues. First, we need to sell one of our investments to raise $1 million because I think I have found a better investment. We could sell the bonds of Company X, which are currently worth $1 million even though they have an amortized cost basis of $950,000. But I don’t want to sell them because I like the steady stream of cash flow we get related to interest. Or we could sell the bonds in that dog, Company Z. These bonds are also worth $1 million, but they cost us $1.2 million. I hate to admit we made such a big mistake, and if they can somehow avoid bankruptcy, we may actually recover our investment. And then there’s that loss. I don’t want to report that. Second, I am going to use the $1 million to buy about 20% of the shares of Company M, but I seem to remember that there is some accounting rule that might affect how much we buy. I was also…
еВook Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $6 million, $10 million, and $14 million. After the fourth year, free cash flow is projected to grow at a constant 4%. Brandtly's WACC is 11%, the market value of its debt and preferred stock totals $52 million, the firm has $15 million in nonoperating assets, and it has 8 million shares of common stock outstanding. a. What is the present value of the free cash flows projected during the next 4 years? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000. b. What is…
2. An analyst for Acme, R. Runner, has recommended that Peter the Anteater purchase shares in a private firm (a firm that is not traded on any exchange) called Dynamite Corp. Dynamite has 30% debt and 70% equity. R. Runner believes that Dynamite will generate a return of 10% over the next year. Since Y. Lee is new to the job, he decides to do a little research on his own. He finds a company, Explosions Unlimited, that has very similar business as Dynamite. Explosions has an equity beta of 1.05 and is composed of 40% debt and 60% equity. Should Peter the Anteater buy the stock? The expected return on the market is 12% and the expected risk-free rate is 5%.
Mr. James K. Silber, an avid international investor, just sold a share of Nestlé, a Swiss firm, for SF4,890. The share was bought for SF2,700 a year ago. The exchange rate is SF2.00 per U.S. dollar now and was SF2.16 per dollar a year ago. Mr. Silber received SF310.00 as a cash dividend immediately before the share was sold. Compute the rate of return on this investment in terms of U.S. dollars. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Required: Mr. James K. Silber, an avid international investor, just sold a share of Néstle, a Swiss firm, for SF5,350. The share was bought for SF4,690 a year ago. The exchange rate is SF2.05 per U.S. dollar now and was SF1.96 per dollar a year ago. Mr. Silber received SF138 as a cash dividend immediately before the share was sold. Suppose that Mr. Silber sold SF4,690, his principal investment amount. forward at the forward exchange rate of SF2.07 per dollar. How would this affect the dollar rate of return on this Swiss stock investment? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Rate of return 11.88
When you bought 300 shares of Tesla at $100/ share and 3 years later it is trading at $150/share and you are still holding onto it, hoping it may still increase in value; So you have not sold it yet in anticipation of the stock price rising even higher, what is your tax liability in year 3 O The difference between where you bought it and where it is currently trading O The $50 gain times the 300 shares you are holding O It depends on what happened in year 2 O None
Suppose a stock pays shareholders $100/year in dividends. The stock is to be held for 10 years. How much will an investor be willing to pay for the stock at 10% interest, if the investor is certain that the company will go bankrupt after 10 years (i.e., the stock will be worthless and no further dividends will be paid)? O A. $1,000 O B. $514 O C. $1,594 O D. $16 OE. $614
John Tye has just been hired as the new corporate finance analyst at I-Ell Enterprises and has received his first assignment. John is to take the $25 million in cash received from a recent divestiture and use part of these proceeds to retire an outstanding $10 million bond issue and the remainder to repurchase common stock. However, the bond issue cannot be retired for another two years. If John can place the funds necessary to retire this $10 million debt into an account earning 6 percent compounded monthly,how much of the $25 million remains to repurchase stock?
None
) Your firm has the following structure: you own all the shares of the Dixit paper cup company. Dixit has $2,000,000 of outstanding perpetual debt with a 10% coupon selling at par. Dixit is currently selling paper cups which produce earnings before interest of $210,000 per year. You receive the following offer from your engineer friend. He would help you liquidate Dixit’s assets and with the proceeds you could build solar powered scooters. Your financing would remain the same. You believe that there is a 75% chance that solar powered scooters would not be particularly successful. In this case they would generate only $100/year. However, there is a 25% chance that solar powered scooters would be very successful. In this case they would generate $500,000 per year. Assume your equity discount rate is 15%. Assume the firm pays no taxes. b) What is the value of the solar powered scooters investment assuming a 15% discount rate? c) What is the value of your equity under each of these…

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