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Andrej [43]
2 years ago
11

The market price of a security is $26. Its expected rate of return is 13%. The risk-free rate is 5%, and the market risk premium

is 7.0%. What will be the market price of the security if its correlation coefficient with the market portfolio doubles (and all other variables remain unchanged)
Business
1 answer:
DedPeter [7]2 years ago
5 0

The increase in stock risk has lowered its value by 16.09%.

<h3>What does market price mean?</h3>
  • The price at which a good or service can currently be bought or sold is known as the market price.
  • The forces of supply and demand determine the market price of a good or service; the price at which the quantity supplied and demanded are equal is the market price.

<h3>What is current price and market price?</h3>
  • Market value is another name for the current price. It is the last traded price for a share of stock or any other security.

According to the question:

  • If the security's correlation coefficient with the market portfolio doubles (with all other variables such as variances unchanged), then beta, and therefore the risk premium, will also double. The current risk premium is:  13% - 5% = 8%

The new risk premium would be 16%, and the new discount rate for the security would be: 16% + 5% = 21%

If the stock pays a constant perpetual dividend, then we know from the original data that the dividend (D) must satisfy the equation for the present value of a perpetuity:

Price = Dividend/Discount rate.

26 = D/0.13.

D =26 x 0.13.

D = $3.38.

At the new discount rate of 21%, the stock would be worth:

$3.38/0.21.

= $16.09.

The increase in stock risk has lowered its value by 16.09%.

Learn more about market price here:

brainly.com/question/25309906

#SPJ4

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Explanation:

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In addition to the three basic financial statements, which of the following is also a required financial statement? O Statement
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Answer:

Statement of Cash Flows.

Explanation:

The financial statement comprises of income statement, balance sheet, statement of stockholder equity and the statement of cash flows. It is explained below

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If the total revenues are more than the total expenditure then the company earns net income

And, If the total revenues are less than the total expenditure then the company have a net loss

This net income or net loss would reflect in the statement of the retained earning account.

In the balance sheet, the assets, liabilities, and stockholder equity is recorded. In this the accounting equation is used which is shown below:  

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The debit and credit side of the balance sheet should always be equal and balanced.  

Moreover, it always is prepared on the specified date.

The statement of stockholder's equity comprises common stock and retained earnings.  

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And, the ending balance of the common stock = Beginning balance of common stock + issued shares

There are three types of activities in the cash flow statement which are described below:  

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These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income and the loss on sale of assets is added whereas the gain on sale of assets is deducted  

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Simpkin Corporation owns manufacturing facilities in States A, B, and C. B uses a three- factor apportionment formula under whic
ivanzaharov [21]

Answer:

Simpkin Corporation

Simpkin's apportionable income assigned to B is:________.

b. $533,333

Explanation:

a) Data and Calculations:

Apportionable operating income = $1,000,000

                   State A            State B           State C         Totals

Sales      $400,000        $800,000      $300,000   $1,500,000

Payroll       100,000           150,000          50,000        300,000

Property   200,000          200,000        200,000       600,000

State B's portion of the operating income = $1,000,000 * $800,000/$1,500

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Observing the above explanation, B Seems like the correct Option.

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