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lubasha [3.4K]
3 years ago
15

Consider the multi-factor APT with two factors. The risk premiums on the factor 1 and factor 2 portfolios are respectively 5% an

d 3%. Stock A has a beta of 1.4 on factor 1, and a beta of 0.5 on factor 2. The expected return on stock A is 14%. If no arbitrage opportunities exist, the risk-free rate of return is __________.
A) 5.0%
B) 5.5%
C) 6.0%
D) 6.5%
Business
1 answer:
Llana [10]3 years ago
6 0

Answer:

Option (B) 5.5%

Explanation:

Data provided in the question :

Factor             Risk premium

Factor 1               5%

Factor 2              3%

Beta of stock A on factor 1 = 1.4

Beta of stock A on factor 2 = 0.5

Expected return = 14%

Now,

Expected return

= Risk free rate + (Beta of factor 1 × Risk premium of factor 1) + (Beta of factor 2 × Risk premium of factor 2)

or

14% = Risk free rate + (1.4 × 5%) + (0.5 × 3%)

or

14% = Risk free rate + ( 7% + 1.5% )

or

Risk free rate = 5.5%

Hence,

Option (B) 5.5%

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Media richness refers toa. a message's impact on the company's bottom lineb. how much a communication channel costs the company
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Media richness has to do with the amount of information that is transmitted through a particular communications channel.

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Which of the following is absolutely necessary for successful implementation and operation of MRP? (I) accurate inventory record
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Answer:

(A) I, II, and IV only

Explanation:

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3 years ago
the Bailey Brothers want to issue 20-year , zero coupon bonds that yield 9% .what price should it charge for these bonds if the
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Answer:

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Explanation:

The computation of the price charged is  shown below:

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3 years ago
In a 1960s movie, an heiress sends out thousands of letters to shareholders in an attempt to have them vote for her and for the
Vitek1552 [10]

Answer:

The kind of corporate takeover technique implemented in the film is proxy fight.

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A proxy fight is termed as a technique where two corporate factions ask the stakeholders for the proxy votes such that the right of voting is transferred.

In this case both the parties, the heiress as well as the opponent is asking for the right of vote from  stakeholders so that they can decide the corporate future. This is the key feature of the proxy fight and thus this is the correct option.

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