# Finance

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#### Calculation of Expected Portfolio Return and Standard Deviation of Portfolio Return

Question Suppose two securities A and B have a covariance COVAB = 20 and are combined to form a portfolio. The expected returns and standard deviations of the two securities are as follows: rA = 10%, QA = 3%, rB = 12%, QB = 4% Finally, $30,000 is the total investment in the two securities a ... Read More

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#### Calculation of Cost of Debt and Cost of New Common Stock of a Company Â

Question Suppose a certain firm’s $1000 par bonds sell currently for $960, pay an annual 9% coupon, have 2% flotation costs, and mature in 20 years. It’s $80 par preferred stock sells currently for $60, pays an annual 6.25% dividend, and has 5% flotation costs. The firm&rsqu ... Read More

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#### Calculation of the Holding Period Payoff on the Call for an Investment

Question Assume an investor took a long position in both a stock and the stock’s call option. At the time of the opening trade, the securities were trading at 18-7/8 and 1-1/8 respectively. The exercise price on the call was 20. Now suppose this investor closes the position in th ... Read More

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#### Calculation of the Annualized Holding Period Payoff on the Call for an Investment

Question Suppose an investor closes a call position when the holding period payoff Z on the option is 8.75%. Assuming a holding period of 90 days, what is the annualized holding period payoff AZ on the call? Summary This question belongs to finance and discusses about calculation of the ann ... Read More

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#### Selection of Best Projects on Post-investment Values

Question Estimates of selected post-investment values for three independent investment projects are as follows: Project 1 Sales: $350 million Earnings per share: $1.70 P/E ratio ... Read More

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#### Calculation of Weighted Average Cost of Capital using New Common Stock and Retained Earnings

Question Assets &n ... Read More

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#### Predicting the Price of a Stock based on a Market Index Value

Question Using Regression Analysis predict the price of your favorite stock shares based on a market index value? For a stock that has at least five years of history, develop a regression equation to predict its value if the index of your choice goes up by and if it goes down by 15% from its value ... Read More

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#### Importance of Opportunity Cost Concept in the Capital Budgeting Process

Question What is opportunity cost and why is it an important concept in the capital budgeting process? The opportunity cost concept applies to almost every financial decision we make as individuals. Can you give an example from your own experience? Summary This question belongs to finance and dis ... Read More

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#### Most Critical Step in the Capital Budgeting Process

Question What is the most critical step in the capital budgeting process? Why there are no absolute answers to capital budgeting decisions? Summary This question belongs to finance and discusses about most critical step in the capital budgeting process. Total word count: 170 ... Read More

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#### Relationship between NPV and Discounted Payback Period

Question What is the relationship between NPV and discounted payback period. How would you use these concepts in evaluating the economic value of your course of study at the school? Summary This question belongs to finance and discusses about relationship between NPV and discounted payback period ... Read More

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#### A Competing PPP Index to the Economist Big Mac Index

Question If you wanted to develop a competing PPP index to the Economist Big Mac Index, what product(s) would you use and why? What are its advantages and disadvantages relative to the Big Mac? Summary This question belongs to finance and discusses about products one can use to develop a competin ... Read More

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#### Exchange Rate between Countries and to Absolute PPP

Question The exchange rate between Country 1 and Country 2 is 1/3 in period 1 and 1/3 in period 2 (They have a fixed exchange rate.) If these are the CPIs in those countries at the end of periods 1 and 2, does Absolute PPP hold? Does Relative PPP hold? Period 1 CPI Period ... Read More

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