1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Pachacha [2.7K]
3 years ago
14

The risk-free rate is 5.4 percent and the market risk premium is 5 percent. Assume that required returns are based on the CAPM.

Your $1 million portfolio consists of $ 218 ,000 invested in a stock that has a beta of 0.5 and the remainder invested in a stock that has a beta of 1.4 . What is the required return on this portfolio?
Business
1 answer:
Karo-lina-s [1.5K]3 years ago
8 0

Answer:

11.419%

Explanation:

Given that,

Risk-free rate = 5.4

Market risk premium = 5

Portfolio = $1 million = $1,000,000

Amount invested in stock A = $218,000

Beta A = 0.5

Amount invested in stock B = $1,000,000 - $218,000

                                              = $782,000

Remainder invested in stock B that has a beta = 1.4

Portfolio beta:

= [(Amount in A × Beta of A) + (Amount in B × Beta of B)] ÷ Total Amount

= [($218,000 × 0.5) + ($782,000 × 1.4)] ÷ $1,000,000

= ($109,000 + $1,094,800) ÷ $1,000,000

= 1.2038

Required return:

= Risk free rate + (Beta × Market risk premium)

= 5.4% + (1.2038 × 5%)

= 5.4% + 6.019%

= 11.419%

Therefore, the required return on this portfolio is 11.419%

You might be interested in
Consumers have certain rights that do NOT carry corresponding responsibilities.
galina1969 [7]

Answer:

<h2>Explanation:Consumers have certain rights that do NOT carry corresponding responsibilities....(<u><em>false is the answer)</em></u></h2>
7 0
3 years ago
Southern Hydraulic Supply is undertaking a review of their inventory policies. A typical product is a small hydraulic fitting. C
zheka24 [161]

Answer:

$418,550

Explanation:

Steps are shown below:

a. The computation of the economic order quantity is shown below:

= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}

= \sqrt{\frac{2\times \text{52,000}\times \text{\$50}}{\text{\$1.25}}}

= 2,040 units

b. The number of orders would be equal to

= Annual demand ÷ economic order quantity

= $52,000 ÷ 2,040 units

=  25.49 orders

c. The average inventory would equal to

= Economic order quantity ÷ 2

= 2040 units ÷ 2

= 1,020 units

d. The total cost of ordering cost and carrying cost equals to

Ordering cost = Number of orders × ordering cost per order

= 25.49 orders × $50

= $1,275

Carrying cost = average inventory × carrying cost per unit

= 1,020 units × $1.25

= $1,275

So, the total annual cost would be  

= Purchase cost + ordering cost + carrying cost

= $416,000 + $1,275 + $1,275

= $418,550

Purchase cost = Annual demand × cost per unit

                        = 52,000 × $8

                        = $416,000

6 0
3 years ago
A circuit board manufacturer estimates the yearly demand to be 1,000,000. It costs $400 to set up the 3D printer for the circuit
EleoNora [17]

Answer:

The manufacturer have to produce 20,000 circuit boards per run with 50 production runs

Explanation:

Let x = number of circuit boards to be produced

An average of x/2 circuit boards are stored throughout the year at a cost of $2 each;

so annual storage cost = x/2*2 = x

Note: it costs $10 each to produce x circuit boards and $400 to set up

Therefore, The cost per run = 10x + 400

The 1,000,000 circuit boards at x circuit board per run would require 1000000/x runs.

Therefore, production costs = cost per run * production run

production costs = (10x + 400)*(1000000/x) = 10,000,000 + 400,000,000/x

Total cost C = storage cost + production cost

C = x + 10,000,000 + 400,000,000/x

Set c to zero and differentiate c with respect to x

0=1+0-400,000,000/x²

Therefore x = 20,000

Number of circuit boards that should be produced to minimize cost is 20,000

While the production runs needed = 1,000,000/x = 1,000,000/20,000= 50

The manufacturer have to produce 20,000 circuit boards per run with 50 production runs

4 0
3 years ago
Read 2 more answers
The monopoly demand curve is _____________, while the perfectly competitive firm’s demand curve is _______________. This is beca
Amiraneli [1.4K]

Answer:

Downward sloping; horizontal line; demand; large number of competitors

Explanation:

A monopoly is a market structure where there is only a single firm in the market. This firm is a price maker. It can charge whatever price it wants, but the consumers will demand more at a lower price.  

That is why the demand curve of a monopoly is downward sloping and the same as the market demand curve.  

A perfectly competitive market refers to the market structure where there is a large number of buyers and sellers. These firms are price takers. They face a horizontal line demand curve. This is because of a large number of competitors producing homogenous products. So if a firm raises its prices the consumers will move to the firm at a lower price.  

The market demand curve though is downward sloping.

8 0
3 years ago
True or false? Affinity Audiences allows advertisers to reach people who’re actively researching and intending to buy the produc
Andrej [43]

Answer:

True

Explanation:

Affinity audiences are part of an audience that is targeted for an advertiser’s display campaigns. Advertisers raise their product awareness by targeting groups based on their passions, lifestyles and specific interests. Let us suppose that you have a new line of makeup that you wish to advertise. The best approach is to target women who constantly do a research of makeup and passionate about this environment.  

6 0
3 years ago
Other questions:
  • A collective bundle of shares is called?
    11·1 answer
  • What is the answer to 20?
    9·1 answer
  • Fayol's Principles of Management provide an accurate description of what managers actually do on the job.​
    9·1 answer
  • How are volatility and risk related in an investment?
    15·2 answers
  • Bonita Company assigns overhead based on machine hours. The Milling Department logs 2350 machine hours and Cutting Department sh
    11·1 answer
  • Seth appears to be taken aback by the number of files on his desk and his coworker’s comments about his boss. This reaction depi
    10·1 answer
  • The process of identifying other organizations that are best at some facet of your operations and then modeling your organizatio
    12·1 answer
  • Check on concentration of economic Power​
    6·1 answer
  • Net exports equal
    9·1 answer
  • If the scale of a single producer is small relative to the demand for an undifferentiated good, the market structure of the prod
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!