Answer:
E. None of the above
Explanation:
First we need to calculate the holding period return
Holding period return is the rate of return which an assets earns during the period in which it holds the assets.
Holding Period Return = (Selling Price - Initial Price + Dividend ) / Initial Price
Holding Period Return = ($24 - $21 + $2.04 ) / $21 = 0.24 = 24%
Now we need to calculate the expected return on the stock using CAPM formula as follow
Expected return = Risk free rate + Beta ( Market Risk Premium )
Expected return = rf + beta ( E(rm) )
Placing values in the formula
Expected return = 8% + 1.2 ( 16% )
Expected return = 27.2%
Abnormal return is the difference of Holding period return and expected return
Abnormal return = 27.2% - 24% = 3.2%
If the price of this bond falls by $200, the interest rate will
d. rise by 2.5 percentage points.
Explanation:
- Bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10%. If the price of this bond falls by $200, the interest rate will rise by 2.5 percentage points.
- Bond valuation is the determination of the fair price of a bond.
- the theoretical fair value of a bond is the present value of the flow of cash that streams in it is expected time to generate.
- In order to calculate the bond price, one has to simply discount the known predict flow of cash.
- When investors get anxious, they buy government bonds. Governments usually pay back their debts, so those bonds are at safety.
- You can also lose money on a bond if you sell it before the maturity date for less than you paid or if the issuer pays on their payments.
3 + 5 + 7 = 15
Activity D can begin after 15 days
Answer:
1.103%
Explanation:
Data provided in the question:
Market debt-equity ratio = 0.65
Corporate tax rate = 40%
Interest on paid its debt = 7%
Now,
Debt ÷ Equity = 0.65
or
Debt = 0.65 × Equity
Weight of Debt = Debt ÷ (Debt + Equity)
or
= ( 0.65 × Equity ) ÷ ( 0.65 × Equity + Equity )
= 0.65 ÷ 1.65
= 0.3939
also,
Tax shield = Corporate tax rate × Interest paid on its debt
= 0.40 × 0.07
= 0.028
= 2.8%
Therefore,
The interest tax shield from its debt lowers Summit's WACC by
= Weight of Debt × Tax shield
= 0.3939 × 2.8%
= 1.103%
