rrf = 9%
rm = 14%
and bi= 1.3
a.what is ri, the required
rate of return on stock i?
The answer is “15.5%”.
This is how we
calculate and find the value of ri;
<span>Ri= (rrf + (rm– rrf)bi</span>
<span>
Now put the values of rrf,rm
and bi;
= (9% + (14% -09%)1.3
<span>
= 15.5%
b.now suppose that rrf (1)
increases to 10% or (2) decreases to 8%. the slope of the sml remains constant.
how would this affect rm and ri?
<span>
1) Ri = (rrf + (rm – rrf)bi</span>
<span>
<span>
rm increases by 1% from 14 to15% Rm</span>
<span>
<span>
rrf increases to10%</span>
<span> = 10% + (15% - 10%)(1.3)
<span>
Ri = 16.5%
2) Ri = (rrf + (rm – rrf)bi
<span>
<span>
Rm decreases to 1% from 14 to13%Rm
</span><span><span>
rrf decreases to 8% from 10 to8%
</span><span>
= 10% + (13% - 8%)(1.3)
<span>
Ri = 14.5%
c.now assume that rrf
remains at 9% but rm (1) increases to 16% or (2) falls to 13%. the slope of the
sml does not remain constant. how would these changes affect ri?
1) ri = rrf +(rm – rrf)bi
Rm increases to16%
= 9% + (16% - 9%)(1.3)
Ri = 18.10% 2) ri = rrf +(rm– rrf)bi
Rm decreases to13%
= 9% + (13% - 9%)(1.3)
Ri = 14.2%
<span> </span></span></span></span></span></span></span></span></span></span></span>
Answer:
b. If Stock A's required return is 11%, then the market risk premium is 5%
Explanation:
Let's analyze each choice with the CAPM formula; r= risk free+beta(mrkt return - risk free)
a.)
Assume market return is 8%
rA= 6% +1 (8% - 6%)= 8%
rB= 6% +2 (8% - 6%)= 10%
Since stock B's return is not twice that of stock A, choice a.) statement is WRONG.
b.)
Formula ; r= risk free+beta(mrkt return - risk free)
Find MRP if rA=11% knowing that MRP = (mrkt rate - risk free)
11% = 6% +1 (11% - 6%)
Therefore MRP= 11%-6% = 5% making choice b. CORRECT
The answer to this question is <span>Total utility
</span><span>Total utility refers to the level of satisfaction that customers experience when consuming a certain amount of goods/products.
The amount of utility could maxed out after customers consuming a certain amount of the same product, which make it impossible to obtain additinal satisfaction after hitting a certain thresold.</span>
Answer:
Buyer
Explanation:
It will be completed by the buyer. This is because after the seller has indicated the potential defects and problems that could potentially affect the value of the property, the onus lies on the buyer to complete the form from his findings too in that regards.
What does the consumer price index measure? B. the change in prices of specific goods and services over time. The consumer price index is also know as the CPI when reffering to this calculation. The CPI measures the weighted items of specific consumer goods and services by averaging them overtime. The CPI allows for comparison of the same products that consumers use on a daily basis and see how much they are using each year. This lets us know how the economy is doing as it relates to inflation. Inflation is the increase in prices and decline of the purchasing value of money in an economy.