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3 years ago

Suppose you observe the following situation:

Business

1 answer:

Finger [1]3 years ago

3 0

Answer:

a. The expected return on the market is 10.89%

b. The risk-free rate is 1.52%

Explanation:

In order to calcuate the expected return on the market and the he risk-free rate we would have to use the following formulas:

Expected return=risk-free rate +Beta*(market rate- risk-free rate )

13.23=Rf+1.25*(Rm-Rf)

13.23=1.25Rm-0.25Rf

Rm=(13.23+0.25Rf)/1.25

To calculate the risk free rate, we use the following:

9.67=Rf+0.87*(Rm-Rf)

9.67=0.13Rf+0.87Rm

9.67=0.13Rf+0.87*(13.23+0.25Rf)/1.25

9.67=0.13Rf+9.20808+0.174Rf

Rf=(9.67-9.20808)/(0.13+0.174)

=1.52%(Approx)=risk free rate

Rm=(13.23+0.25Rf)/1.25

=10.89%(Approx)=market rate

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Swifty Corporation is planning to sell 200000 hammers for $8 per unit. The contribution margin ratio is 20%. If Swifty will brea

jeyben [28]

Answer:

$320,000

Explanation:

Given that,

Planning to sell hammers = 200,000

Selling price per unit = $8

contribution margin ratio = 20%

At break even, Fixed costs = Contribution margin

Therefore,

Contribution margin ratio:

= (Planning to sell hammers × Selling price per unit) × contribution margin ratio

= (200,000 × $8) × 20%

= $320,000

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4 0

3 years ago

You hold a diversified portfolio consisting of a $10,000 investment in each of 20 different common stocks (that is, your total i

jenyasd209 [6]

Answer:

new beta of the portfolio= 1.235

so correct option is b. 1.235

Explanation:

given data

investment = $10,000

common stocks = 20

total investment = $200,000

portfolio beta = 1.2

sell one stocks beta = 0.7

sell = $10,000

purchase another stocks beta = 1.4

to find out

What will be the beta of the new portfolio

solution

we first find increment in beta that is express as

increment in beta = investment × ( purchase stocks beta - sell stocks beta) ÷ total investment .............................1

put here value we get

increment in beta = $\frac{10000*(1.4-0.7)}{200000}$

increment in beta = 0.035

new beta of the portfolio will be

new beta of the portfolio = 1.2 + 0.035

new beta of the portfolio= 1.235

so correct option is b. 1.235

3 0

3 years ago

Given the returns for two stocks with the following information, calculate the correlation coefficient of the returns for the tw

julsineya [31]

Answer:

The correlation coefficient of the returns for the two stocks is 0.231

Explanation:

From the question given, we apply the method called co variance

Co variance is referred to as when the co-movement of variables are measured.

The co variance is defined as:

ρ₁,₂=Cov₁,₂/σ₁ x σ₂

The Expected return of stock 1 μ1= 0.4 x 9+0.5 x 11+0.1 x 17=10.8%

The Expected return of stock 1 μ2=0.4 x 11+0.5 x 8+0.1 x 13=9.7%

The Variance of stock 1 σ²₁ is:

1 σ²₁=0.092 x 0.4+0.112 x 0.5+0.172 x 0.1−0.1082σ12=0.092 x 0.4+0.112 x 0.5+0.172 x 0.1−0.1082

=0.012180-0.011664 =0.000516

The standard deviation of stock 1 σ₁ =2√0.0005162 =0.022716 =2.2716%

Thus,

The Variance of stock 2 σ²₂ is:

2 σ²₂= 0.112 x 0.4+0.082 x 0.5+0.132 x 0.1−0.09722 =0.009730-0.009409=0.000321

The standard deviation of stock 2 σ₂ =2√0.000321 =0.017916=1.792%

Cov₁,₂=0.4 x (0.09−0.108)x (0.11−0.097)+0.5 x(0.11−0.108)x(0.08−0.097)+0.1 x(0.17−0.108)x(0.13 8)x(0.13−0.097) =-0.000094-0.000017+0.000205 =0.000094

Therefore,

ρ₁,₂=0.000094/((0.017916)x(0.022716)) =0.231

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3 years ago