EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Chapter 13.8, Problem 3CC
Summary Introduction

To determine: The risk model that is most consistent with investor’s choices in their mutual fund investments.

Introduction: CAPM is abbreviated as Capital Asset Pricing Model. Expected return is the method of finding the average anticipated probability of several diverse interest rates that are probable on a particular asset. The issues in such persistence comprise dissimilar market environments, which also includes the beta of an asset. Beta is the risk related with a portfolio or a security in connection to the market. It is also termed as the beta coefficient; it is a method for deciding the requirement on security or stock that may move in contrast to the market.

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An individual is planning for retirement and aims to withdraw $100,000 at the beginning of each year, starting from the first year of retirement, for an expected retirement period of 20 years. To fund this retirement plan, he intends to make 20 equal annual deposits at the end of each year during his working years. Assume a simple annual interest rate of 20% during his working years and a simple annual interest rate of 5% during retirement. What should his annual deposit amount be to achieve his desired retirement withdrawals? Please write down the steps of your calculation and explain result economic meaning.
Assume an investor buys a share of stock for $18 at t=0 and at the end of the next year (t=1), he buys 12 shares with a unit price of $9 per share. At the end of Year 2 (t=2), the investor sells all shares for $40 per share. At the end of each year in the holding period, the stock paid a $5.00 per share dividend. What is the annual time-weighted rate of return? Please write down the steps of your calculation and explain result economic meaning.
On how far do you endorse this issue? Analyze the situation critically using official statistics and the literature.

Chapter 13 Solutions

EBK CORPORATE FINANCE

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