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spayn [35]
3 years ago
15

Consider the following scenario analysis:Rate of Return Scenario Probability Stocks BondsRecession 0.20 -4 % 16 %Normal economy

0.50 18 % 9 %Boom 0.30 29 % 6 %a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?b. Calculate the expected rate of return and standard deviation for each investment.c. Which investment would you prefer?

Business
1 answer:
Vikentia [17]3 years ago
4 0

Answer and Explanation:

a. Here it is reasonable to presume that the treasury bond generates high returns when there is a recession.  

b. The calculation of the expected rate of return and the standard deviation for each investment is shown below:

For stocks

= (Expected return of the boom × weightage of boom) + (expected return of the normal economy × weightage of normal economy) + (expected return of the recession × weightage of recession)  

= (29% × 0.30) + (18% × 0.50) + (-4% × 0.20)  

= 8.7% + 9% - 0.80%

= 16.9%

For bonds  

= (Expected return of the boom × weightage of boom) + (expected return of the normal economy × weightage of normal economy) + (expected return of the recession × weightage of recession)  

= (6% × 0.30) + (9% × 0.50) + (16% × 0.20)  

= 1.8% + 4.5% + 3.2%

= 9.5%

Now the standard deviation calculation is to be shown in the excel spreadsheet

For the stock it is 11.48%

And, for the bond it is 3.5%

c. The investment that should be prefer could be computed by determine the coefficient of variation which is shown below:

Formula i.e. used is

= Standard deviation ÷ expected return

For stock, it is

= 16.9% ÷ 11.48%

= 1.47

And, for bonds it is

= 9.5% ÷ 3.5%

= 2.71

Since for the bonds the coefficient of variation is greater so the same is to be considered

Therefore the bond should be prefer

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Kathleen is considering expanding her dress shop. If interest rates rise she is Group of answer choices less likely to expand. T
Karolina [17]

Answer:

<u><em>Less likely to expand.</em></u>

Explanation:

When ever interest rates rise in an economy, the soul purpose of that is to control inflation by influencing the people to save more and consume/spend less.

Hence, when the interest rates will rise, Kathleen will be moving away from the expansion process as she will have to borrow the money at more cost than before, hence increasing the risk of return from the expansion process. Hence this will lead to the demand for loan-able funds to slope downwards.

Hope this helps you. Good Luck.

7 0
3 years ago
The following data relate to the Torrence Company for May and August:
Zinaida [17]

Answer:

Total cost= $1,193,000

Explanation:

Giving the following information:

May August

Maintenance hours 25,000 29,000

Maintenance cost $1,175,000 $1,247,000

<u>First, we need to calculate the variable and fixed costs using the following formulas:</u>

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (1,247,000 - 1,175,000) / (29,000 - 25,000)

Variable cost per unit= $18

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 1,247,000 - (18*29,000)

Fixed costs= $725,000

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 1,175,000 - (18*25,000)

Fixed costs= $725,000

<u>Now, the total cost for 26,000 hours:</u>

Total cost= 725,000 + 18*26,000

Total cost= $1,193,000

7 0
2 years ago
Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's
kolezko [41]

Answer:

Effect on income= $68,580 increase

Explanation:

<u>Because it is a special order, and there is unused capacity, we will not take into account the fixed costs. Only the variable ones.</u>

<u>First, we need to calculate the unitary cost:</u>

Unitary cost= 46.1 + 8.8 + 1.8 + 1.3

Unitary cost= $58

<u>Now, the effect on the income of accepting the offer:</u>

Effect on income= 2,700*(83.4 - 58)

Effect on income= $68,580 increase

8 0
3 years ago
HealthWise Corporation has developed a new diet supplement to assist with weight loss. Which type of legal protection grants Hea
lidiya [134]

Answer:

True

Explanation:

Patent -

It refers to the legal rights given in order to sell , publish , manufacture the goods and services for a specified time period , is referred to as a patent .

The company or people has the legal right to sell or publish any others work .

These patents are approved by the government .  

It enables to provide the monetary value for the country , by designing and developing goods and services.

Hence , from the given scenario of the question ,

The correct term is patent .

5 0
3 years ago
The following data are available relating to the performance of Wildcat Fund and the market portfolio: Wildcat Market Portfolio
alekssr [168]

Answer:

50.0%

Explanation:

The computation of the information ratio is as follows

Information ratio = Alpha ÷ residual standard deviation

where,

Alpha is

= Average rate of return - required rate of return

The average rate of return is 18%

And the required rate of return is

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

= 7% + 1.25 × (15% - 7%)

= 17%

So, the alpha is

= 18% - 17%

= 1%

Therefore the information ratio is

= 1% ÷ 2%

= 50.0%

5 0
2 years ago
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