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Nadusha1986 [10]
2 years ago
8

Parr Paper's stock has a beta of 1.442, and its required return is 13.00%. Clover Dairy's stock has a beta of 0.80. If the risk-

free rate is 4.00%, what is the required rate of return on Clover's stock?
Business
1 answer:
Viktor [21]2 years ago
3 0

Answer:

Required rate of return on clover's stock is 8.99%

Explanation:

The required rate of return on Clover's stock can be computed using Miller and Modgliani capital asset pricing model formula given below:

Ke=Rf+beta*(Rm-Rf)

Ke is the required rate of return, the unknown

Rf is the risk free rate of return of 4.00%

beta for Clover is 0.80

Rm is the not known as well but can computed using the Parr paper's details below:

beta is 1.442

required return IS 13%

13.00%=4.00%+1.442*(Rm-4.00%)

13%-4%=1.442*(Rm-4.00%)

9%=1.442*(Rm-4.00%)

9%/1.442=Rm-4%

6.24% =Rm-4%

Rm=6.24%+4%

Rm=10.24%

Now the required return on Clover's stock can be computed

Ke=4%+0.8*(10.24%-4%)

Ke=8.99%

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3 years ago
You have just received a windfall from an investment you made in a​ friend's business. He will be paying you at the end of this​
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Answer:

a. $80,318.70

b. $97,568.57

Explanation:

Here is the full question :

You have just received a windfall from an investment you made in a​ friend's business. She will be paying you $ 15 comma 555 at the end of this​ year, $ 31 comma 110 at the end of next​ year, and $ 46 comma 665 at the end of the year after that​ (three years from​ today). The interest rate is 6.7 % per year. a. What is the present value of your​ windfall? b. What is the future value of your windfall in three years​ (on the date of the last​ payment)?

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = $ 15,555

Cash flow in year 2 = $31,110

Cash flow in year 3 =  $ 46,665

I = 6.7%

Present value = $80,318.70

The formula for calculating future value:

FV = P (1 + r)^n

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$80,318.70(1.067)^3 = $97,568.57

3 0
3 years ago
A strictly dominant action produces: a higher payoff than any other action the player can use for every possible action of the o
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Answer:

A strictly dominant action produces: a higher payoff than any other action the player can use for every possible action of the other players.

Explanation:

A strictly dominant action does not play fair. Here, there is no equality because strict dominance requires all payoffs to be strictly greater.

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4 0
3 years ago
1. The Herfindahl index: Suppose that three firms make up the entire bicycle manufacturing industry. One has a 40% market share,
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Answer:

3400, Rise, C

Explanation:

1. Since there are just 3 firms and two already has a sum total of 70% (40+30), the third firm will have a market share of 30%

HHI= 40^{2}+ 30^{2}+30^{2}\\

HHI= 1600+900+900

HHI= 3400

2. Abe's Bikes with 30% leaves the market, if the two firms were to share Abe's market share equally (15+15), it will leave Firm A with 55% (40+15) and Firm B with (30+15) 45%

Therefore,

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3 0
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Answer:

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