18‚ 2008‚ determine the total market value of your company’s equity. $54.60 6. If the betas for your company that you found in Part 1 of the Course Project differ‚ then which beta will you use to determine your company’s cost of equity using the CAPM/SML‚ and why? There were three different betas from part 1 (0.6889‚ 0.77‚ 1.137). The highest value‚ 1.137‚ will be used to determine the company’s cost of equity because it will represent the worst case scenario for our calculations (i.e. a beta
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Sauder School of Business Finance Division COMM 371 Sep-Dec 2011 Gonzalo Morales Marked Problem Set 2 - Solution Notes 1. First‚ compute the correlation coefficient between assets A and B ρ(RA ‚ RB ) = Cov (RA ‚ RB ) −0.0322 = = −1. σ (RA )σ (RB ) 0.14 × 0.23 The assets are perfectly negatively correlated. Consider portfolio P formed from assets A and B such that you invest α fraction of your wealth into A and (1 − α) fraction into B. The variance of such portfolio is σ (RP
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Curriculum Source References The following references were used in the CFA Institute-produced publications Quantitative Methods for Investment Analysis‚ Analysis of Equity Investments: Valuation‚ and Managing Investment Portfolios: A Dynamic Process. Ackerman‚ Carl‚ Richard McEnally‚ and David Ravenscraft. 1999. “The Performance of Hedge Funds: Risk‚ Return‚ and Incentives.” Journal of Finance. Vol. 54‚ No. 3: 833–874. ACLI Survey. 2003. The American Council of Life Insurers. Agarwal‚ Vikas and Narayan
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company will require additional long-term capital financing. Long-term financing involves debt or equity instruments with greater than one-year maturities‚ and the cost of this long-term capital can be calculated using either the Capital Asset Pricing (CAPM) or Discounted Cash Flows (DCFM) Model. The organization will have to compare and contrast the Capital Asset Pricing Model with the Discounted Cash Flows Model. The skill of comparing and contrasting financial options will help evaluate
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enhanced by the inclusion of a risk-free investment that pays 1%. Does access to this asset change your answer to 1e) above? Feel free to use calculations. 3. What is the beta of Small in the problem above? What is the beta of Big? If the CAPM is true‚ is Small in equilibrium‚ is it undervalued or is it overvalued? What about Big? You may continue to assume that the risk-free rate is 1%. 4. Download the spreadsheet labeled “Homework 3 Problem 4 Spreadsheet” from the course website
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Ford Date: 2/13/13 Subject: Nike’s Cost of Capital I agree with Ms. Ford’s estimate of Nike’s Cost of Capital at 8.4% The WACC is the appropriate method for valuing Nike’s capital. The WACC takes your cost of debt x the percent of capital + CAPM x equity percent of capital and it tells the rate of return the company needs to return based on its capital structure. In my opinion Ms. Ford has correctly assumed Nikes cost of debt and cost of equity. Her projection for cost of debt uses the Japanese
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straight‚ and will be straight at equilibrium - see discussion below on domination. For any particular investment type‚ the line drawn from the risk-free rate on the vertical axis to the risk-return point for that investment has a slope called the Sharpe ratio Option and futures contracts often provide leverage on underlying stocks‚ bonds or commodities; this increases the returns but also the risks. Note that in some cases‚ derivatives can be used to hedge‚ decreasing the overall risk of the portfolio
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the Young Women’s Christian Association‚ the Red Cross‚ and the Victorian Oder of Nurses” (Sharpe 192). William Lyon Mackenzie King is certainly correct when he named Wilson to the Senate. An editorial writer describes her as “one of the industrious women politicians‚ spinsters‚ and others who have talked incessantly of their rights as women without discharging any of their responsibilities as such” (Sharpe 191). Emily Murphy’s efforts in the Persons Case such as writing a petition to appoint women
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children such as child poverty‚ social deprivation and overcrowding. (Sharpe‚ 2011). Maori are the indigenous people of New Zealand and make up the statistics of the most affected ethnic group in the country. According to the Ministry of Health‚ Maori are believed to have the worst health standings in the country. 36 children of the 49 admissions were admitted at starship hospital; all but one was of Pacific and Maori decent (Sharpe‚ 2011). Both Maori and Pacific descents over represent these statistics
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Chapter 8 Risk and Return: Capital Market Theory 8-1. To find the expected return from James Fromholtz’s investment opportunity‚ we will use equation 7-3: where i indexes the various states of nature that are possible. We can picture the states of nature for James’s opportunity as: Despite the symmetrical appearance of the graph‚ the outcomes are not symmetrical: There are many more outcomes that are positive than negative. Only the 100% return (probability 5%) is negative; 95% of the weight
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