Under the Following Conditions, What Are the Expected Returns for Stocks

question 143

Multiple Choice

Under the following conditions, what are the expected returns for stocks X and Y?

$\begin{array}{ll}\lambda^{0}=0.04 & b_{x, 1}=1.2 \\k_{1}=0.035 & b_{x, 2}=0.75 \\k_{2}=0.045 & b_{y, 1}=0.65 \\& b_{y, 2}=1.45\end{array}$

• A) 11.58% and 12.8%
• B) 15.65% and 18.23%
• C) 13.27% and 15.6%
• D) 18.2% and 16.45%
• E) None of the above

Identify the sources of foreign exchange risk and the authoritative literature governing hedges of such risks.

Evaluate the effectiveness of derivative financial instruments as hedges of foreign currency exposure.

Determine the fair value adjustments and accounting implications of derivative instruments.

Understand the distinction between cash flow and fair value hedges in the context of foreign currency transactions.

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Definitions:

Total Costs

The combined total of fixed and variable costs involved in the manufacturing of goods or services.

Daily Profit

The financial gain a business makes in a single day, calculated by subtracting total expenses from total revenue for that day.

Marginal Costs

The advance in complete cost due to the manufacturing of one additional unit of a good or service.

Cournot Duopolists

Firms in a duopoly market structure that base their competition strategies on the quantity of output, assuming the reaction of the other firm to find an equilibrium.