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2 years ago

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The risk-free rate is 5 percent and the market risk premium is 8 percent. Stock Y's beta is 1.85 and the standard deviation of i

ts returns is 62.5 percent. What should be the stock's expected rate of return for the stock price to be considered in equilibrium?

1 answer:

Romashka [77]2 years ago

5 0

Answer:

g

Explanation:

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andre [41]

The Code of Hammurabi was one of the earliest and most complete written legal codes, proclaimed by the Babylonian king Hammurabi, who reigned from 1792 to 1750 B.C. Hammurabi expanded the city-state of Babylon along the Euphrates River to unite all of southern Mesopotamia. The Hammurabi code of laws, a collection of 282 rules, established standards for commercial interactions and set fines and punishments to meet the requirements of justice. Hammurabi’s Code was carved onto a massive, finger-shaped black stone stele (pillar) that was looted by invaders and finally rediscovered in 1901.

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2 years ago

Columbia Gas Company’s (CG) current capital structure is 35% debt and 65% equity. This year CG has earnings after tax of $5.31 m

Reil [10]

Answer:

Current dividend per share paid (Do)

= <u>Total dividend </u>

No of shares outstanding

= <u>$1,600,000</u>

1,000,000 shares

= $1.60 per share

Current market price = $31

Growth rate = 8% = 0.08

Ke = Do<u>(1 + g)</u> + g

Po

Ke = $1.60<u>(1 + 0.08)</u> + 0.08

$31

Ke = 0.1357 = 13.57%

Interest rate on borrowing (Kd) = 10%

Tax rate (T) = 40% = 0.40

WACC = Ke(E/V) + Kd(D/V)(1-T)

WACC = 13.57(65/100) + 10(35/100)(1 - 0.4)

WACC = 8.82 + 2.10

WACC = 10.9%

The correct answer is A

Explanation:

In this case, we need to calculate cost of equity. The cost of debt has been given, which is the interest rate on long-term borrowing (10%). Since the debt proportion in the capital structure is 35% and equity proportion is 65%, it implies that the value of the firm is 100%. Then, WACC is the aggregate of cost of each stock and the proportion of each stock in the capital structure.

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2 years ago

Portfolio diversification eliminates: Multiple Choice all investment risk. the portfolio risk premium. market risk. unsystematic

kaheart [24]

Answer:

Unsystematic risk

Explanation:

<em>The portfolio theory posits that the total risk on a collection of assets (i,e a portfolio) can be reduced by spreading the invested fund into different assets that are uncorrelated.</em>

<em>According to this model, the total risk on a portfolio is divided into systematic and unsystematic risks. The theory assumed by diversification, the unsystematic risk associated with a portfolio is eliminated.</em>

Unsystematic risk essentially are those unique individual assets for example. if we invest in company stock, risk associated with factors like bad management , law suit against a company, defect in company;s products are example of unique or systematic risks

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2 years ago

Tu Corporation is investigating automating a process by purchasing a machine for $423,000 that would have a 9 year useful life a

raketka [301]

Answer:

simple rate of return = 16.4 %

so correct option is B. 16.4%

Explanation:

given data

purchasing a machine = $423,000

useful life = 9 years

cash operating costs = $112,000 per year

yielding = $27,000

annual depreciation = $47,000

to find out

simple rate of return on the investment

solution

we get here simple rate of return on the investment that is express as

simple rate of return = $\frac{annual\ incremental\ net\ operating\ income}{initial\ investment}$ .............................1

put here value we get

simple rate of return = $\frac{112000-47000}{423000-27000}$

solve it we get

simple rate of return = 16.4 %

so correct option is B. 16.4%

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2 years ago

The city of New Orleans has 200 advertising companies, 199 of which employ designers of normal ability at a salary of $100,000 a

san4es73 [151]

Answer:

a. Jacob should earn= $100,000 + ($1,000,000 - $500,000)

= $100,000 + $500,000

=$600,000

Hence, Jacob earns $600,000

b. The economic rent is the amount by which payment of Jacob(600,000) exceed the reservation price of the supplier(100,000)

Thus, the economic rent = 600,000 - 100,000 = $500,000

Proportion of Economic rent = Economy rent / Salary of jacob

= $500,000 / $600,000

= 5/6

Hence, the proportion of the economic rent of Jacob is salary is 5/6

c. The advertising company will not be able to make an economic profit because if they withhold some additional revenue made because of hiring Jacob, then he will switch to another advertising company at a higher salary and that company keep on making profit. The company should bid for Jacob until firm are indifferent on paying $600,000 or hiring someone else for $100,000 . Thus, the bidding of Jacob will continue until the salary of Jacob has bid up to a level where no company can make economic profits

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2 years ago