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Strike441 [17]
3 years ago
7

Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.2. Stock B has an expected return of 14% and

a beta of 1.8. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered the better buy because _________.A; it offers an expected excess return of .2%A; it offers an expected excess return of 2.2%B; it offers an expected excess return of 1.8%B; it offers an expected return of 2.4%
Business
1 answer:
Ilia_Sergeevich [38]3 years ago
6 0

Answer:

B; it offers an expected excess return of 1.8%

Explanation:

In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

For Stock A

The expected rate of return would be

= 5% + 1.2 × (9% - 5%)

= 5% + 1.2 × 4%

= 5% + 4.8%

= 9.8%

And, the expected return is 10%

So, the excess would be

= 10% - 9.8%

= 0.2%

For Stock B

The expected rate of return would be

= 5% + 1.8 × (9% - 5%)

= 5% + 1.8 × 4%

= 5% + 7.2%

= 12.2%

And, the expected return is 14%

So, the excess would be

= 14% - 12.2%

= 1.8%

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Answer:

COGS    3807 debit

FG          7896 debit

WIP         2397 debit

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Explanation:

overhead rate:

\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate

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Actual            805,900

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Now we weight each concept and determiante the portion underapplocated in each concept

\left[\begin{array}{cccc}Item&Value&Weight&Allocated\\COGS&221400&0.27&3807\\FG&459200&0.56&7896\\WIP&139400&0.17&2397\\&&&\\Total&820000&1&14100\\\end{array}\right]

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