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zhuklara [117]
4 years ago
9

We have the following CAPM E(Ri) = .06 + .08 Beta; a) If Stock X has a beta of 2, what is the required rate of return? b) If we

form a portfolio that is invested 40% in Stock X and 60% in the risk free asset, the expected rate of return on that portfolio? What is the beta of that portfolio? Stock Z has a beta of 1.5 and an expected return of 15%. Is at a good buy? d)Construct a portfolio of Stock X and the risk free asset which has a beta of 1.5. what is c) e) What is the expected return for this purpose?
Business
1 answer:
sergiy2304 [10]4 years ago
4 0

Answer:

Please kindly go through explanation for the answers.

Explanation:

A)The required return if Beta is 2 = 0.06+0.08*2 =0.22

B)Here Rf = 0.06

Expected return of the portfolio = 0.4*22% + 0.6*6% =12.4%

since beta of Rf = 0,the expected beta = 0.4*2 = 0.8

C)Beta is nothing but systematic risk of a security in comparing to the market. In this case stock z having beta of 1.5 which is less than beta of stockX i.e 2. and expected return is 15%.so stockz is offering lower return at lower risk. If the investor is a risk averse its a good buy.

D) let W be portion of stock X.

Then w*2 + (1-w)*0 = 1.5

W = 1.5/2 =0.75

to construct a portfolio which has a beta of 1.5 we have to invest 75% of our money in stock X and remaining in risk free asset

E) expected return = 0.22*.75 +0.25*0.06 = 16.5% + 1.5% = 18%

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What is the present value of the following cash flows at a discount rate of 9 percent?
frutty [35]

Answer:

Year 1 PV = 91,743.12

Year 2 PV =126,251.99

Year 3 PV =  154,436.70  

Explanation:

<em>The present value of future sum is the amount that ought to be invested today at interest rate compounded annually to equal the sum at the end of a particular period.</em>

The present value of a future sum is given as follows:

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r- interest rate

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Year 1 PV = 100,000× 1.09^(-1) =91,743.12

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4 0
3 years ago
What is a saturated market like for sellers? A. Consumer demand is higher. B. It contains more available consumers. C. It is mor
mestny [16]
Hello,

The answer should be option D "<span>It encourages companies to produce more of the product".

Reason:

A saturated market is a product that is distributed which means companies would have to make more of that product in order to make money, and to have more consumers buy their products. The answer is not option A because the consumer will demand more of the product but not to be higher. Its not option B because the product is being distributed among people but not different consumers. Its also not option C because its not against other markets. Therefore the answer is option D.

If you need anymore help feel free to ask me!

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4 0
4 years ago
Read 2 more answers
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Answer:

$245,000.00

Explanation:

The amount of sales revenue to be made to achieve target profit is computed as follows:

<em>Sales revenue to achieve target income</em>

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Contribution margin = (Sales - variable cost) / sales   ×  100

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Sales revenue to achieve target profit = (83,000 + 15,000)/0.4

$245,000.00

Watson Company has monthly fixed costs of $83,000 and a 40% contribution margin ratio. If the company has set a target monthly income of $15,000, what dollar amount of sales must be made to produce the target income?

Sales revenue to achieve target profit = $245,000.00

8 0
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