Question

6. If all three versions of the efficient market hypothesis (EMH) are t atement below a. There should be correlation between period retus true, choose the correct b. Technical analysis can result in superior returns. c. The market price would represent the true value of an asset d. Fundamental Security analysis would be beneficial in increasing the 1. PROBLEMSET ONE: Solve return on a portfolio. 7. (worth a total of 12 points): l going long") one Clearwire August $50 CALL option contract that vou pose you implement a Straddle strategy by purchasing you purchase one Clearwire August $50 PUT option cost $4. Also, price of $50.00 and the same expiration date. Compute the p contract that cost $5. Both options have the same strke straddle for two price scenarios: ayoff and profit (Noss) of the A (worth 6 points);: if the Clearwire stock price is 530 at expiration, what is your: i) Total Payoff from the straddle? ii) Total Profit (loss) from the straddle? B. (worth 6 points): If the Clearwire stock price is $60 at expiration, what is your: i) Total Payoff from the straddle? ) Total Profit (loss) from the straddle? a 3% annual 8. (worth 8 points): Jose purchased a euro bond which has a par value of S 1,000, bond pays an coupon rate, a yield to maturity of 2.80%, with five years until maturity, the euro annual coupon. After two years, Jose sold the bond at a price of $1010. if he invested the annual coupon and earned a return of 2.50% per year, what is his total realized return over the two year holding period? 9, (worth a total of 14 points): Sanders, Inc. currently pays out 100% of its earnings to required rate of return for Sanders, Inc is 12%. a) (worth 4 points): Calculate the current intrinsic value of Sanders' stock, if the firm keeps its current dividend payout policy forever b) (worth 10 points): Suppose that the management of Sanders, Inc. just discovered a profitable growth opportunity that lasts forever and has a ROE-15%. Thus, Sander's management decides to pay out only 40% of its earnings starting from next year's dividend and forever after. The reason for this dividend policy is that Sanders can reinvest the remaining 60% of its earning in the growth opportunity. What is the present value of Sanders' growth opportunity (PVGO) 10) (worth a total of 10 points): If the return on the market portfolio is expected to be 11% next Suppose you conduct your own year, IBM Inc. has a beta of 1.4, and the risk-free rate is 3%. security analysis, and find that the expected return for IBM next year should be 17%. a) (worth 6 points): What is the alpha of IBM when you use CAPM? b) (worth 4 points): Would you buy or short sell IBM? Briefly explain your answer.