Answer:
Yes, the results are the same in both frameworks. Please see below for explanation.
Explanation:
With regards to the bond supply and demand framework, people will look to buy more bonds since they are more wealthy now. Hence, the supply of bonds will increase. The supply curve and the demand curve will both move to the right, with the former shifting more than the latter. The equilibrium interest rate will increase.
With regards to the liquidity preference framework, once the economy experiences a positive shift, there will also be an increase in the demand for money. People will make an increased number of transactions as well and hence, the demand curve will move towards the right. The equilibrium interest rate will rise too.
Answer:
14.35%
Explanation:
Simon Software Co
rs= 12%
D/E = 0.25
rRF= 6%
RPM= 5%
Tax rate = 40%.
We are going to find the firm’s current levered beta by using the CAPM formula which is :
rs = rRF+ RPM
12%= 6% + 5%
= 1.2
We are going to find the firm’s unlevered beta by using the Hamada equation:
=bU[1 + (1 −T)(D/E)]
Let plug in the formula
1.2= bU[1 + (0.6)(0.25)]
1.2=(1+0.15)
1.2= 1.15bU
1.2÷1.15
1.0435= bU
We are going to find the new levered beta not the new capital structure using the Hamada equation:
b= bU[1 + (1 −T)(D/E)]
Let plug in the formula
= 1.0435[1 + (0.6)(1)]
=1.0435(1+0.6)
=1.0435(1.6)
= 1.6696
Lastly we are going to find the firm’s new cost of equity given its new beta and the CAPM:
rs= rRF+ RPM(b)
Let plug in the formula
= 6% + 5%(1.6696)
= 14.35%
Answer:
1.29375
Explanation:
Data provided in the question:
Total investment = $10,000
Number of different common stock = 8
Portfolio's beta = 1.25
Beta of a stock sold = 1.00
Beta of the replacement stock = 1.35
Now,
Change in portfolio beta = weight × (change in security beta)
also,
change in security beta
= Beta of the replacement stock - Beta of a stock sold
= 1.35 - 1
= 0.35
and,
Weight = Beta ÷ Number of different common stock
= 1 ÷ 8 = 0.125
Therefore,
Change in portfolio beta = 0.125 × 0.35
= 0.04375
thus,
New portfolio beta = Portfolio's beta + Change in portfolio beta
= 1.25 + 0.04375
= 1.29375
Credit cards i’m pretty sure
