Answer:
New required rate of return = 11.88%
Explanation:
<em>The capital asset pricing model is a risk-based model. Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk. The magnitude by which a stock is affected by systematic risk is measured by beta. </em>
<em>Under CAPM, Ke= Rf + β(Rm-Rf) </em>
<em>Ke- required rate of return, Rf-risk-free rate (treasury bill rate), β= Beta, Rm= Return on market.
</em>
Using the model, we work out Beta which is not given and then re-calculate the required rate of return of the new stock
<em>Ke- 11.75 % Rf- 5.5, Rm-Rf = 4.75%, β= ?</em>
11.75% = 5.50% + β(4.75%)
11.75% -5.50% = β(4.75%)
(11.75-5.50)/4.75= β
1.315789474
= β
1.315
= β
New required rate of return
5.50% + 1.315(1.02×4.75)
11.875
New required rate of return = 11.88%
Answer: Bank B is the better investment. In 10 years, her $2,000 will grow to $4,317.85, and with bank A, her $2,000 will grow to $3,700.
Explanation:
Bank A was offering 8.5% simple interest. $2000 with 8.5% simple interest. = A = P(1 + rt)
A = 2000(1+(0.085*10))
= 2000(1+0.85)
= 2000(1.85)
= 3,700
Bank B was offering 8% compounded annually
= A = P(1+r/n)^nt
A= 2000(1+8%/1)^1*10
A= 2000(1+0.08)^10
A= 2000(1.08)^10
A= 2000*2.1589
= 4,317.85
Answer:
The correct answer is letter "B": equilibrium quantity to rise and the equilibrium price to fall.
Explanation:
Given the market for a certain product, in case both the demand and supply of that good increase, as the demand increases, <em>the equilibrium quantity is likely to increase</em>. Every time the equilibrium quantity increases, <em>the equilibrium price tends to fall</em>.
Answer:
- <u><em>No, he will not have enough money to buy his delivery truck at the end of 6 years.</em></u>
Explanation:
To find how much<em> money Earl Mille</em>r, <em>owner of Papa Gino's franchise</em>, will have in <em>6 years</em>, you must calculate the value of the <em>$20,000</em> that he <em>invests</em> at the <em>5% compounded semiannually:</em>
- Semianual compounded interest: 5% / 2 = 0.05/2 = 0.025
Equation:
Where r/n was already calculated: r/n = 0.05/2 = 0.025; and t is the number of years: 6.
Hence the value of the money invested is less than the value of the truck, and <em>he will not have enough money to buy his delivery truck at the end of 6 years.</em>
