Review the excerpted table of historic returns shown below. The returns have all been annualized after having calculated monthly returns for the previous ten years. In addition, information is provided about the average, the volatility, and the sensitivity of the possible investments. Time Period # Market Return Firm W Firm X Firm Y Firm Z T-Bill 1 0.333 0.191 0.218 0.955 0.601 0.035 2 -0.144 -0.423 -0.632 -0.747 -0.472 0.039 3 0.143 0.348 0.470 0.379 0.378 0.040 4 0.316 0.871 0.868 -0.192 0.502 0.036 5 0.178 0.912 0.499 0.694 0.364 0.036 6 -0.014 0.532 0.168 -0.671 -0.064 0.038 … … … … … … … … … … … … … … 119 0.374 0.556 1.014 0.023 0.698 0.037 120 0.173 0.547 0.092 0.658 0.222 0.036 Average Return 0.082 0.113 0.067 0.167 0.121 0.029 Standard Deviation 0.156 0.369 0.497 0.398 0.456 0.011 Beta 1.00 1.21 0.89 1.41 1.25 0.00 Firm Y has a Debt/Equity Ratio of 0.75 and a Tax Rate of 20%, while Firm Z has a Debt/Equity Ratio of 0.25 and a Tax Rate of 20%.Which of the following statements is true, concerning the two firms’ leverage and sensitivity?Multiple Choice The levered sensitivity of Firm Z is higher than that of Firm Y, although the unlevered sensitivity of Firm Z is lower than that of Firm Y Both the levered and unlevered sensitivity of Firm Z are higher than those of Firm Y Both the levered and unlevered sensitivity of Firm Z are lower than those of Firm Y There is not enough information to determine the two firms' leverage and sensitivity The unlevered sensitivity of Firm Z is higher than that of Firm Y, although the levered sensitivity of Firm Z is lower than that of Firm Y

Review the excerpted table of historic returns shown below. The returns have all been annualized after having calculated monthly returns for the previous ten years. In addition, information is...

Review the excerpted table of historic returns shown below. The returns have all been annualized after having calculated monthly returns for the previous ten years. In addition, information is provided about the average, the volatility, and the sensitivity of the possible investments.



Time Period #	Market Return	Firm W	Firm X	Firm Y	Firm Z	T-Bill
1	0.333	0.191	0.218	0.955	0.601	0.035
2	-0.144	-0.423	-0.632	-0.747	-0.472	0.039
3	0.143	0.348	0.470	0.379	0.378	0.040
4	0.316	0.871	0.868	-0.192	0.502	0.036
5	0.178	0.912	0.499	0.694	0.364	0.036
6	-0.014	0.532	0.168	-0.671	-0.064	0.038
…	…	…	…	…	…	…
…	…	…	…	…	…	…
119	0.374	0.556	1.014	0.023	0.698	0.037
120	0.173	0.547	0.092	0.658	0.222	0.036

Average Return	0.082	0.113	0.067	0.167	0.121	0.029
Standard Deviation	0.156	0.369	0.497	0.398	0.456	0.011
Beta	1.00	1.21	0.89	1.41	1.25	0.00

Firm Y has a Debt/Equity Ratio of 0.75 and a Tax Rate of 20%, while Firm Z has a Debt/Equity Ratio of 0.25 and a Tax Rate of 20%.

Which of the following statements is true, concerning the two firms’ leverage and sensitivity?

Multiple Choice

The levered sensitivity of Firm Z is higher than that of Firm Y, although the unlevered sensitivity of Firm Z is lower than that of Firm Y

Both the levered and unlevered sensitivity of Firm Z are higher than those of Firm Y

Both the levered and unlevered sensitivity of Firm Z are lower than those of Firm Y

There is not enough information to determine the two firms' leverage and sensitivity

The unlevered sensitivity of Firm Z is higher than that of Firm Y, although the levered sensitivity of Firm Z is lower than that of Firm Y

Jun 03, 2022

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