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Sliva [168]
3 years ago
15

Suppose Caroline is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky gro

up of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds.Combination Fraction of Portfolio in Diversified Stocks (Percent) Average Annual Return (Percent) Standard Deviation of Portfolio Return (Risk) (Percent)A 0 2.50 0B 25 3.50 5C 50 4.50 10D 75 5.50 15E 100 6.50 20As the risk Caroline's portfolio increases, the average annual return on her portfolio _____ (rises or falls).Suppose Caroline currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combinations B. She wants to increase the average annual return on her portfolio from 3.5% to 5.5%. In order to do so, she must do which of the following? Choose all that applya. Sell some of her stocks and place the proceeds in a savings accountb. Sell some of her stocks and use the proceeds to purchase bondsc. Sell some of her bonds and use the proceeds to purchase stocksd. Accept more riskThe table uses the standard deviation of the portfolio's return as a measure of risk. A normal random variable,e such as a portfolio's return, stays within two standard deviations of its average approximately 95% of the time.Suppose Caroline modifies her portfolio to contain 50% diversified stocks and 50% risk-free government bonds; that is, she chooses combination C.The average annual return for this type of portfolio is 4.5%, but given the standard deviation of 10%, the returns will typically (about 95% of the time) vary from a gain of _____( -15.5% , 0.9% , 14.5% , 24.5% ) to a loss of _____ ( -15.5% , -5.5% , 0.9% , 24.5% ).
Business
1 answer:
stich3 [128]3 years ago
5 0

Answer:

Ans 1)

As Average Annual return increases from Combination A to E we can observe that Standard deviation also increases from A to E

Therefore it is clear that there is positive relationship between the Risk of Caroline's portfolio and the average annual return.

Ans 2)

IF Caroline needs to reduce the risk associated with portfolio combination D from 15 to 5 then he can do 2 things such that he should sell some portion of portfolio invested into stocks and ultimately accept lower returns because as we see in Part 1) answer risk and returns are positively correlated.

Option 2) and Option 3) are correct

Ans 3)

95% confidence interval gives us range of -2*SD, 2*SD

therefore range of return for given scenario with portfolio return equals to 3.5% and SD=5%

(Mean- z value*SD , Mean value*SD)=

(3.5%-2*5% , 3.5%+2*5%)=(-6.5%,13.5%)

Gain of 13.5% and Loss of -6.5%

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This problem is solved by using the compound interest formula:
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2 years ago
In 2019, the CEO of Crimson, Inc., entertains seven clients at a skybox in Memorial Stadium for a single athletic event during t
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Answer:

Crimson may not be able to deduct any of the cost incurred. In other words these expenses are inadmissible.

Explanation:

As per scenario given in the above question, Crimson Inc., may not be able to deduct any cost which is incurred related to the entertainment expenses because many changes has been made in the tax cuts and Jobs act,2017. These changes does not allowed deduction of the entertainment and business meals expenses.

In the year 2018, the entertainment expenses could not be deducted according to the tax laws applicable on the companies. Thus, the costs will not be deducted.

4 0
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Answer:

$6,900

Explanation:

The cash flow statement includes three types of activities which are listed below:

1. Operating activities: This involves all transactions that after net income impact the working capital. It would subtract the rise in current assets and a reduction in current liabilities, while adding the decline in current assets and an increase in current liabilities.

It would adjust those changes in working capital. In addition, the depreciation cost is added to the net income, and the loss of asset sales is reduced, while the profit on asset sales is deducted

It also involve cash receipts and cash payments.

2. Investing activities: It tracks operations that include buying and selling long-term properties. The buying is a cash outflow whereas the sale is a cash inflow

3. Financing activities: It tracks transactions that have an impact on long-term debt and equity balance of shareholders. Share issue is a cash inflow while redemption and dividend are cash outflows.

So, the classification and the amount of cash flows is shown below:

a. Issue common stock for cash, $44,000 = $44,000 = Financing activities

b. Purchase building and land with cash, $29,000 = ($29,000) = Investing activities

c. Provide services to customers on account, $6,400 = Not applicable as this transaction does not involve any cash.

d. Pay utilities on building, $700 = ($700) = Operating activities

e. Collect $4,400 on account from customers = $4,400 = Operating activities

f. Pay employee salaries, $8,400. = ($8,400) = Operating activities

g. Pay dividends to stockholders, $3,400.  = ($3,400) = Financing activities

So, the cash flow would be

= $44,000 - $29,000 - $700 + $4,400 - $8,400 - $3,400

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Answer:

C

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