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Kazeer [188]
3 years ago
10

Company A has a beta of 0.90, while Company B's beta is 1.20. The required return on the stock market is 11.00%, and the risk-fr

ee rate is 4.5%. What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.)
Business
1 answer:
iren [92.7K]3 years ago
7 0

Answer:

The difference between A's and B's required rate of return is 1.95% with B's required rate of return being 1.95% higher than A's.

Explanation:

The required rate of return is the minimum return that investors require to invest in a stock. Using CAPM, we can calculate the required rate of return on a stock using the following formula,

r = rRF + Beta of Stock * (rM - rRF)

Where,

  • rRF is the risk free rate
  • rM is the expected return on market

For company A, r = 0.045 + 0.9 * (0.11 - 0.045)   =  0.1035 or 10.35%

For company B, r = 0.123 or 12.30%

The difference between A's and B's required rate of return is,

Difference = 12.30% - 10.35%  =  1.95% with B's required rate of return being 1.95% higher than A's.

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8 0
1 year ago
Look at the examples, and then determine which type of advantage each one describes.
lara [203]

Answer:

<span> 1) If a producer can provide cable service more cheaply than another producer, it is an</span> absolute advantage.<span>
2) If a  producer can produce salads while giving up fewer opportunities to make sandwiches than another producer, it is a</span> comparative advantage.

3) If a  producer can create more car parts than another producer does,  using the same number of resources, the price per unit is cheaper and it is an absolute advantage.

Absolute advantage<span> is the ability of a person, a  country, company or region to produce a good or service at a cheaper price per unit than another entity producing the same good or service.</span>

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4 0
3 years ago
Read 2 more answers
Earl holds 1,000 pounds of perishable fruit in storage for fresh food corporation. fresh food does not pay for the storage. earl
Sergeeva-Olga [200]
This sale represent A MITIGATION OF DAMAGE.
The principle of the mitigation of damage states that a person who has suffered an injury or loss should take reasonable action where possible to avoid additional injury. The failure to take reasonable action to prevent further loss may result in reduction in the amount that the person can recover if the case is taken to court.
8 0
3 years ago
Bramble Corp. makes and sells widgets. The company is in the process of preparing its selling and administrative expense budget
Alexandra [31]

Answer:

$720,000

Explanation:

The total budgeted selling and administrative expenses is made up of both fixed and variable components. The variable component of the cost is dependent on the budgeted number of units to be sold.

Total variable cost budgeted

= 58000 ( $1 + $3 + $4 +$2)

= $580,000

Total fixed cost = $10,000 + $120,000 + $4,000 + $6,000

= $140,000

total budgeted selling and administrative expenses for October

= $580,000 + $140,000

= $720,000

5 0
2 years ago
Suppose that Under Armor and Nike are the sole producers of a particularly comfortable athletic shoe. The two firms currently ch
gayaneshka [121]

Answer:

b. both firms will reduce their price.

Explanation:

The Nash equilibrium is a decision-making theorem that lies inside the game theory where the player could attain the expected result by not deviating to the beginning strategy. In this, the strategy of the each player is optimal at the time when the other player decisions are relevant

So as per the given situation, both the firm should decrease their price

hence the option b is correct

7 0
2 years ago
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