The data below describe a three-stock financial market that satisfies the single-index model. Stock Capitalization Beta...
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The data below describe a three-stock financial market that satisfies the single-index model. Stock Capitalization Beta Mean Return Standard deviation 1.0 10% 0.2 2% 1.7 17% A B C TZS 3,000,000 TZS 1,940,000 TZS 1,360,000 The standard deviation of the market index portfolio is 25%. 40% 30% 50% What is the mean return of the portfolio? (2 Marks) b. What is the covariance between stock A and Stock B? (1 Marks) c. What is the covariance between stock B and the market index portfolio? (1 Marks) d. Break down the variance of stock B into its systematic and firm-specific components. (2 Marks) C. Cham Corporation wants to buy a machine for TZS 50,000,000, with a maximum life of 4 years. However, there is a 20% probability that machine will break down after only 3 years. The company will depreciate the machine on ACRS basis, with a life of 3 years. Assume that depreciation in the first year is 25%, second year 38% and 37% in the 3rd year. The tax rate of the company is 34% and discount rate is 12%. What is the amount of pre-tax income of CamScanner. this machine to break even? (5 Marks) a. The data below describe a three-stock financial market that satisfies the single-index model. Stock Capitalization Beta Mean Return Standard deviation 1.0 10% 0.2 2% 1.7 17% A B C TZS 3,000,000 TZS 1,940,000 TZS 1,360,000 The standard deviation of the market index portfolio is 25%. 40% 30% 50% What is the mean return of the portfolio? (2 Marks) b. What is the covariance between stock A and Stock B? (1 Marks) c. What is the covariance between stock B and the market index portfolio? (1 Marks) d. Break down the variance of stock B into its systematic and firm-specific components. (2 Marks) C. Cham Corporation wants to buy a machine for TZS 50,000,000, with a maximum life of 4 years. However, there is a 20% probability that machine will break down after only 3 years. The company will depreciate the machine on ACRS basis, with a life of 3 years. Assume that depreciation in the first year is 25%, second year 38% and 37% in the 3rd year. The tax rate of the company is 34% and discount rate is 12%. What is the amount of pre-tax income of CamScanner. this machine to break even? (5 Marks) a.
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a To calculate the mean return of the portfolio we need to use the weights of each stock in the portfolio and their respective mean returns The weights are given by the capitalization of each stock We... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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