Since you provide no relevant number,
In order to find out the optimal Asset allocation, you should find out which investment opportunities that Provide the highest return with the lowest standard deviation in the risk department
hope this helps
Kane manages a used book store he reads a report advising him to stock more encyclopedias. However the report is mistaken customers in Kane's town hardly ever buy encyclopedias. what problem could this mistake cause?
As mentioned below, if the consumers do not buy the encyclopedias, then they will lose money due to purchasing items that consumers do not want. It's necessary to not only look over reports, but understand the reports to make sure that a business is not overstocking in items that consumers are not actually in demand for. Consumers will purchase items they have a demand for and based on the reports, you can understand the items they are in demand for versus the items they will not be purchasing.
Answer:
30.92%
Explanation:
Use CAPM (Capital Asset Pricing Model) to find the cost of equity;
cost of equity ;r = risk free rate + Beta (Market Risk Premium)
risk free rate = 4.90% or 0.049 as a decimal
Beta = 2.8
Market Risk Premium = 8.56% or 0.0856 as a decimal
Next, plug in the numbers to the above CAPM formula;
r = 0.049 + 2.8(0.0856)
r = 0.049 + 0.23968
r = 0.2887 or 28.87%
Therefore, cost of equity using CAPM is 28.87%
Next. find cost of equity using Dividend growth model ;
r = (D1/P0) +g
r = (3/13.65) + 0.11
r = 0.2198 + 0.11
r = 0.3298 or 32.98%
Cost of equity using Dividend growth model is 32.98%
Find the average of the two to find the cost of equity of this stock;
= (28.87% + 32.98%) /2
= 61.85%/2
= 30.92%
