the future and the return each was likely to experience in different situations. PART #2 METHODOLOGIES 1) Beta= [ Cov(r‚ Km) ] / [ StdDev(Km) ]2 R= is the return rate of the investment Km = is the return rate of the asset class 2) CAPM= ra = rf + Betaa(rm - rf) Ra= is the asset price Rf = is the risk-free rate of return Beta= is the risk premium Rm =is the market rate of return 3) Rate of Return 4) 5) PART #3 SOLUTIONS 1) Beta of Stock A= 1.315 Beta of
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P8-17 Total‚ Nondiversifiable and Diversifiable Risk c) Because Diversifiable risk can be eliminated through portfolio diversification‚ the more relevant risk is the Nondiversifiable risk. This kind of risk can be attributed to market forces and factors that affect ALL the firms and cannot be eliminated through portfolio diversification. In this case‚ the nondiversifiable risk is about 6.00%. Notice that the area between the red curve and the green line (which represents the diversifiable risk)
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provides legal framework for the programmes of reform Every Child Matters: Change for Children published is December 2004. The aim of the act is to improve services for children and young people aged 0- 19 including disabled children and young people. ECM sets out five outcomes which all services should work towards. These are: To be Healthy‚ stay safe‚ enjoy and achieve through learning and make a positive contribution to society and achieve economical well being. Race relations Act 1976 (Amendments)
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INTRODUCTION * Wrigley has a one sided capital structure * Their interest rates has been at their lowest in 50 years * However‚ they have the leading market share in a stale low technology business * Blanka Dobrynin‚ the managing partner of Aurora Borealis LLC (a company who used a hedge fund to invest in companies who are in distress‚ merger arbitrage‚ change-of-control transactions‚ and recapitalization) wanted to investigate a potential investment of $3B in Wrigley * Wrigley
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CHAPTER 6 RISK‚ RETURN‚ AND THE CAPITAL ASSET PRICING MODEL True/False Easy: | |(6.2) Payoff matrix |Answer: a |EASY | |[i]. |A payoff matrix shows the set of possible rates of return on an investment‚ along with their probabilities of occurrence‚ and the | | |investment’s expected rate of return as found by multiplying each outcome or "state" by its probability.
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the cost of Debt: with a risk free rate‚ the floating and the fixed debt‚ its separates the divisions‚ uses A-rated debt for the spread‚ and debt / equity. all of which are acceptable. Marriott uses the Cost of Equity: with CAPM and a constant beta. The Capm is acceptable‚ but the constant beta isn’t the best option. there should be different betas for different division risks. 3) What is the Weighted Average Cost of Capital for Marriott Corporation? WACC= (1-t) x rD x D/V +
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CIVIL AIR PATROL NATIONAL HEADQUARTERS MAXWELL AFB AL 36112-6332 CAP MANUAL 39-1 23 MARCH 2005 Personnel – General CIVIL AIR PATROL UNIFORM MANUAL This manual describes the various Civil Air Patrol (CAP) uniform items and how they will be worn. SUMMARY OF CHANGES. This revision is a general update that includes descriptions of AF-style outergarments; deletes region commander authority to substitute region patch for the CAP command patch on the AF-style flight suit; deletes region commander
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Target debt ratio is 60%; actual is 41% [Exhibit 1] βs = 1.11 βu = βs / (1 + (1 – τ) D/E) = 1.11/(1 + (1 – .44) (.41)) = 0.80 Using the target debt ratio of 60%: βTs = βu (1 + (1 – τ) D/E) = .8(1 + (1 – .44) (.6/.4)) βTs =1.47 Using CAPM: rf = 8.95% long-term rate on U.S. government bonds (rm – rf) = 7.43% average 1926-1987 rE = rf + βTs (rm – rf) = 8.95% + (1.47)(7.43%) = 19.87% Cost of Debt rD = government bond rate + credit spread = 8.95% + 1.30% = 10.25% WACC = (1 - τ)rD(D/V)
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Empirical evidence suggests that CAPM (beta - adjusted return) tends to underestimate historical rates of return on small companies (i.e.‚ beta -adjusted return too low) • SBBI Yearbook has documented this effect: – Size-based (where size is measured by market value) premiums over return predicted using textbook CAPM – Based on 10 size (where size is measured by market value) deciles • Correction to textbook CAPM: add premium to the return predicted by the textbook CAPM to adjust expected return
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financial analysis‚ adopting the CAPM model‚ to calculate the cost of capital of the investment. Mr. Ricketts & his management team will then make a sound financial decision basing on our analysis results. According to our agreed plans‚ Mr. Ricketts has specifically requested us to perform the following three tasks and provide our recommendation accordingly. I. Briefly discuss the asset beta and CAPM model‚ and explain the steps for computing the asset beta and CAPM to produce the cost of capital
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