Questions from Corporate Finance


Q: Each of the following statements is dangerous or misleading. Explain why

Each of the following statements is dangerous or misleading. Explain why. a. A long-term United States government bond is always absolutely safe. b. All investors should prefer stocks to bonds becau...

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Q: Hippique s.a., which owns a stable of racehorses,

Hippique s.a., which owns a stable of racehorses, has just invested in a mysterious black stallion with great form but disputed bloodlines. Some experts in horseflesh predict the horse will win the co...

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Q: Lonesome Gulch Mines has a standard deviation of 42% per year

Lonesome Gulch Mines has a standard deviation of 42% per year and a beta of +.10. Amalgamated Copper has a standard deviation of 31% a year and a beta of +.66. Explain why Lonesome Gulch is the safer...

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Q: Hyacinth Macaw invests 60% of her funds in stock I and

Hyacinth Macaw invests 60% of her funds in stock I and the balance in stock J. The standard deviation of returns on I is 10%, and on J it is 20%. Calculate the variance of portfolio returns, assuming...

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Q: Halcyon Lines is considering the purchase of a new bulk carrier

Halcyon Lines is considering the purchase of a new bulk carrier for $8 million. The forecasted revenues are $5 million a year and operating costs are $4 million. A major refit costing $2 million will...

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Q: a. How many variance terms and how many different covariance terms

a. How many variance terms and how many different covariance terms do you need to calculate the risk of a 100-share portfolio? b. Suppose all stocks had a standard deviation of 30% and a correlation...

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Q: Your eccentric Aunt Claudia has left you $50,000 in

Your eccentric Aunt Claudia has left you $50,000 in BP shares plus $50,000 cash. Unfortunately her will requires that the BP stock not be sold for one year and the $50,000 cash must be entirely invest...

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Q: There are few, if any, real companies with negative betas

There are few, if any, real companies with negative betas. But suppose you found one with β = –.25. a. How would you expect this stock’s rate of return to change if the overall market rose by an extr...

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Q: You can form a portfolio of two assets, A and B

You can form a portfolio of two assets, A and B, whose returns have the following characteristics:  If you demand an expected return of 12%, what are the portfolio weights? What is the portfolio’s st...

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Q: A common stock will pay a cash dividend of $4 next

A common stock will pay a cash dividend of $4 next year. After that, the dividends are expected to increase indefinitely at 4% per year. If the discount rate is 14%, what is the PV of the stream of di...

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