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
mario62 [17]
3 years ago
9

Stock Y has a beta of 1.30 and an expected return of 14.9 percent. Stock Z has a beta of .95 and an expected return of 12.8 perc

ent.
If the risk-free rate is 5.20 percent and the market risk premium is 7.70 percent, are these stocks overvalued or undervalued?
Business
1 answer:
Sever21 [200]3 years ago
6 0

Answer:

Stock Y is overvalued and Stock Z is undervalued.

Explanation:

The stock is fairly valued when the required rate of return on the stock is equal to its expected return. If the expected return on the stock is more than the required rate of return, the stock is undervalued and vice versa.

The required rate of return on the stock is calculated under the CAPM approach suing the following formula.

r = rRF + Beta * rpM

Where,

  • rRf is the risk free rate
  • rpM is the risk premium on market

r of Stock Y = 0.052 + 1.3 * 0.077  =  0.1521 or 15.21%

The required rate of return of Stock Y (15.21%) is more than its expected rate (14.9%) which means the stock is overvalued.

r of Stock Z = 0.052 + 0.95 * 0.077 = 0.12515 or 12.515%

The required rate of return of Stock Z (12.515%) is less than its expected rate (12.8%) which means the stock is undervalued.

You might be interested in
A semiprofessional baseball team near your town plays two home games each month at the local baseball park. The team splits the
GarryVolchara [31]

Answer:

The team earns $405 in revenue for each game and $2430 revenue each season. With total costs of $3300 each season, the team finishes the season with $ -870 of profit

Explanation:

TEAM EARNS $ 10 FOR EACH TICKET AND 30 PEOPLE ATTEND A GAME AND SPEND $7 ON CONCESSION STAND BUT TEAM RECEIVE ONLY $ 3.5 OUT OF THIS SO

PER CUSTOMER REVENUE OF TEAM= $13.5

TOTAL REVENUE PER GAME = 13.5 * 30= $405

FOR A SEASON OF 6 GAMES, TOTAL REVENUE= 405* 6=$2430

PROFIT = REVENUE- COST= 2430- 3300 = -870 $

THAT MEANS LOSS OF 870 $

The team earns $405 in revenue for each game and $2430 revenue each season. With total costs of $..3300...... each season, the team finishes the season with $ -870 of profit or loss of $870

8 0
3 years ago
Consider a bp gas station. as a result of an economic recession and decreases in consumer incomes, there will be a:
Alina [70]
<span>During an economic recession when the income of consumers has decreased, the BP station (an all gas stations) will see a leftward shift in the demand curve. This will result in gas stations having to lower their prices. If they don't lower their prices, they will have a glut of gasoline that they can't sell.</span>
4 0
2 years ago
Which of the following is not a type of business organization
gizmo_the_mogwai [7]

A charity, for exampl,e is not a business organizaaation.
5 0
3 years ago
Read 2 more answers
The Dogwood Technology Company managerial accountant computes the May total variance report. The budgeted fixed overhead was $ 4
Jobisdone [24]

Answer:

$750 favorable ; $200 unfavorable

Explanation:

The computations are shown below:

For fixed overhead budget variance:

= Budgeted fixed overhead - actual fixed overhead

= $47,420 - $46,670

= $750 favorable

For fixed overhead volume variance:

= Budgeted fixed overhead - standard fixed overhead cost allocated to production

= $47,420 - $47,220

= $200 unfavorable

Hence we consider all the given information

8 0
3 years ago
Compare the concept of a modern supply chain with more traditional distribution channels. Be specific regarding similarities and
Rus_ich [418]

Answer:

The answer to the following question is given below :

Explanation:

  • The typical model of production was structured to meet the challenges and bring benefits. With new capacity and operating results, the supply chain has become progressively more competitive and efficient.
  • The modern supply chain is tailored to meet evolving customer needs. Freight capacity and administrative performance have become more reliable and cost-effective. Supply chain structures can supply the goods at exact times.

6 0
3 years ago
Other questions:
  • Sasha's new company has told her that she will be required to move at her own expense in two years. What should she consider bef
    15·2 answers
  • ABC Co. performs $200 of services for a customer, but does not get paid right away. Demonstrate how ABC Co. would record this tr
    13·1 answer
  • Which financial decision is this:
    8·1 answer
  • When sending a resume to companies without seeing a job opening, it's best to send the same ones out
    7·2 answers
  • 25,000 shares reacquired by Elixir Corporation for $53 per share were exchanged for undeveloped land that has an appraised value
    10·1 answer
  • On December 31 of the current year, Jerome Company has an accounts receivable balance of $329,000 before any year-end adjustment
    12·1 answer
  • The Firm X just paid a dividend of $1.26 per share on its stock. The dividends are expected to grow at a constant rate of 5% per
    10·1 answer
  • The following are hibiscus company cost of making and selling an item:
    15·1 answer
  • Alejandro works nights at a restaurant. His job is to prepare drinks for customers. He serves drinks directly to customers who s
    8·1 answer
  • you want to buy a new car, but you can make an initial payment of only $2,400 and can afford monthly payments of at most $500.
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!