Finance

Finance

Rule: Complete the following 4 problems and each one is worth 20 points. The top 2 scores will be used to replace the lowest 2 scores in your Test 1 Problems.
1.    You are given the returns for the following three stocks:
Year    Stock A        Stock B        Stock C
1        8%          3%        -24%
2        8        13          37
3        8          7          14
4        8          5              9
5        8        12              4
Calculate the arithmetic return, geometric return, and standard deviation for each stock. Do you notice anything about the relationship between an asset’s arithmetic return, standard deviation, and geometric return? Do you think this relationship will always hold?
2.    You just sold short 1,000 shares of Jacobson, Inc., a fledgling software firm, at $96 per share. You cover your short when the price hits $86.50 per share one year later. If the company paid $.75 per share in dividends over this period, what is your rate of return on the investment? Assume an initial margin of 60 percent.

3.    How many of the May contracts from the table below are currently open? How many of these contracts should you sell if you wish to deliver 155,000 bushels of corn in May? If you actually make delivery, how much will you receive? Assume you locked in the settle price. Suppose you sell 25 of the May corn futures at the high price of the day. You close your position later when the price is 475.275. Ignoring commission, what is your dollar profit on this transaction?

Corn 5,000 bushels
Contract Month    Open        High        Low        Settle        Chg     Open Int
Mar        455.125         457.000         451.750         452.000      22.750      597,913
May        467.000         468.000         463.000         463.250      22.750      137,547
July        477.000         477.500         472.500         473.000      22.000      153,164
Sep        475.000         475.500         471.750         472.250      22.000       29,258

4.    Suppose you’re evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3.2 percent. The second fund buys only taxable, short-term commercial paper and yields 4.9 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 3.0 percent. If you are a New Jersey resident, your federal tax bracket is 35 percent, and your state tax bracket is 8 percent, which of these three MMMFs offers you the highest after-tax yield? Which MMMF offers you the highest yield if you are a resident of Texas, which has no state income tax?

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