QUESTION What do you think would happen to the expected return on stocks if investors perceived higher volatility in the equity market? Relate your answer to equation 7.5. Volatility measures the dispersion of a stock from its mean or from its expected return. Now the best way to measure a stock volatility is through the […]
QUESTION The trade-off theory relies on the threat of financial distress. But why should a public corporation ever have to land in financial distress? According to the theory, the firm should operate at the top of the course market movements or business setbacks could bump it up to a higher debt ratio and put it […]
QUESTION In 2008 Pfizer had 12,000 million shares of common stock authorized, 8,863 million in issue, and 6,746 million outstanding (figures rounded to the nearest million). Its equity account was as follows: Common stock $443 Additional paid-in capital 70,283 ANSWER: CLICK REQUEST FOR AN EXPERT SOLUTION
QUESTION Flotation Costs. Young Corporation stock currently sells for $30 per share. There are one million shares currently outstanding. The company announces plans to raise $3 million by offering shares to the public at a price of $30 per share.a. I f the underwriting spread is 8 percent, how many shares will the company need […]
QUESTION Company Valuation. Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 30 percent of the company”s present value, and you believe that at this capital structure the company”s debt holders will demand a return of 6 […]
QUESTION In the Monte Carlo technique, what is the criticality index?a. The number of days the project will be late divided by the project durationb. The percent of time a given activity will be on the critical pathc. The percent of time an activity will be late d. The sum of the duration of the […]
QUESTION The following questions appeared in past CFA Level I examinations. a. Which one of the following comparative statements about common stock call options and warrants is correct? Call Option Warrant a. Issued by the company No ANSWER: CLICK REQUEST FOR AN EXPERT SOLUTION
QUESTION Joshua Corp. has 10% coupon bonds on the market with 8 years to maturity. The bonds make semi-annual payments and currently sell for 107 percent of par. What is the Yieldto-Maturity (YTM) and current yield on Joshuas bonds? Solution: YTM = Cash flow add (Face Value less Price) /n ) /(Face Value add Price)/2 […]
QUESTION Nevada Hydro is 40 percent debt-financed and has a weighted-average cost of capital of 9.7 percent:Bankers Tryst Company is advising Nevada Hydro to issue $75 million of preferred stock at a dividend yield of 9 percent. The proceeds would be used to repurchase and retire common stock. The preferred issue would account for 10 […]
QUESTION Estimating BetaSuppose the market portfolio tends to increase by 47% when the economy is strong and decline by 25% when the economy is weak. What is the beta of a type S firm whose return is 40% on average when the economy is strong and -20% when the economy is weak? What is the […]
