Questions from Corporate Finance


Q: True or false? a. Investors prefer diversified companies

True or false? a. Investors prefer diversified companies because they are less risky. b. If stocks were perfectly positively correlated, diversification would not reduce risk. c. Diversification o...

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Q: A factory costs $400,000. It will produce

A factory costs $400,000. It will produce an inflow after operating costs of $100,000 in year 1, $200,000 in year 2, and $300,000 in year 3. The opportunity cost of capital is 12%. Show your calculat...

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Q: In which of the following situations would you get the largest reduction

In which of the following situations would you get the largest reduction in risk by spreading your investment across two stocks? a. The two shares are perfectly correlated. b. There is no correlatio...

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Q: To calculate the variance of a three-stock portfolio, you

To calculate the variance of a three-stock portfolio, you need to add nine boxes:  Use the same symbols that we used in this chapter; for example, x1 = proportion invested in stock 1 and σ12 = covar...

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Q: Suppose the standard deviation of the market return is 20%.

Suppose the standard deviation of the market return is 20%. a. What is the standard deviation of returns on a well-diversified portfolio with a beta of 1.3? b. What is the standard deviation of retu...

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Q: A portfolio contains equal investments in 10 stocks. Five have

A portfolio contains equal investments in 10 stocks. Five have a beta of 1.2; the remainder have a beta of 1.4. What is the portfolio beta? a. 1.3. b. Greater than 1.3 because the portfolio is not co...

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Q: What is the beta of each of the stocks shown in table

What is the beta of each of the stocks shown in table 

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Q: Look again at projects D and E in Section 5-3

Look again at projects D and E in Section 5-3. Assume that the projects are mutually exclusive and that the opportunity cost of capital is 10%. a. Calculate the profitability index for each project. b...

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Q: Consider the following capital rationing problem: / Set up

Consider the following capital rationing problem: Set up this problem as a linear program and solve it. You can allow partial investments, that is, 0 ≤ x ≤ 1. C...

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Q: Here are inflation rates and U.S. stock market and

Here are inflation rates and U.S. stock market and Treasury bill returns between 1929 and 1933:  a. What was the real return on the stock market in each year? b. What was the arithmatic average real...

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