Risk but not systematic risk total risk systematic

  • Ryerson University
  • FIN 300
  • Test Prep
  • MehZar
  • 3
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risk, but not systematic risk-total risk(systematic and unsystematic risk) is measured by standard deviation; systematic riskis measured by beta.If stock A has higher total risk than stock B, but stock B has a higher beta,then stock B is still riskier. Examples: A company will purchase a new machine with a cost of 750K. The machine requires an initial investment in NWC of 25K. NWCwill remain at this level during the life of the machine and will be recovered at the end. The machine operates for 3 years. No salvage value and taxes and tax rate are all zero. Machine produces 10,000 unites, price is $30 and cost per unit is $7. Fixed cost of 50K and rate of return of 12%1) Present value of NWC recovered at the end of the projectn=3,I=12,PV= 0 Solve for, PMT=0, FV= 25k
2) What is the present value of the OCF?
3) What is NPV
20. Your portfolio has beta of 1.08. Portfolio consists of 20% treasury bills, 45% in sock A, 35% in stock B. Stock A has risk level equal to the overall market (Means beta for alpha is 1). What is the beta for stock B?
List 2: 0.15,0.10,0.25. Calc-
37.XYZ Company's preferred shares will pay a constant dividend of $2.00 per year forever,
starting in 1 year. Given the risk of the shares you think the appropriate discount rate should be 20% per year for the first 3 years. You then think the discount rate should drop to 12% per year in year 4 and will last forever. How much would you be willing to pay for these preferred shares?
19.If portfolio weights are positive: 1) Can the return on a portfolioever be less than the smallest return on an individual security in the portfolio? 2) Can the variance of a portfolio ever be less than the smallest variance of an individual security in the portfolio?
37.XYZ Company's preferred shares will pay a constant dividend of $2.00 per year forever, starting in 1 year. Given the risk of the shares you think the appropriate discount rate should be 20% per year for the first 3 years. You then think the discount rate should drop to 12% per year in year 4 and will last forever. How much would you be willing to pay for these preferred shares?

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