Expected return of the stock is greater than 12%.
Using formula, Risk free rate + beta (market risk rate - risk free rate)\
= 2% + 2.0 (7%-2%)
= 13.6 - 0.4* risk premium
Risk premium of a stock is greater than 12%.
A stock's total return takes into account both capital gains and losses as well as dividend income, as opposed to a stock's nominal return, which only displays its price movement. In addition to considering the actual rate of return, investors should consider their ability to withstand the risk involved with a given investment. An investment's return on investment (ROI) provides a general indication of its profitability. The return on investment (ROI) is calculated by subtracting the investment's initial cost from its final value, dividing the result by the cost of the investment, and finally multiplying the result by 100.
Note that the full question is:
If the market risk premium is 7%, the risk-free rate is 2% and the beta of a stock is 2.0, what is the expected return of the stock?
A. less than 12%.
B. 12%.
C. greater than 12%.
D. cannot be determined.
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Answer:
We know the company's ROE and plowback ratio, and we can use these 2 figures to find out the future growth rate of the company. In order to do this we need to multiply the ROE by plowback ratio.
0.18*0.7=0.126= 12.6%
We can also find the company's dividend, by (1- plowback ratio) we get how much percentage of the earning is the company distributing as dividends.
(1-0.7)= 0.3 which is the dividend payout ratio
Dividend= Dividend payout ratio *EPS
0.3*6=1.8
This dividend is the dividend which the company will pay in the upcoming year after which they will have a constant growth rate, so in order to find the intrinisc value now, we need to find the intrinsic value of the stock will be in the upcoming year using the upcoming years dividend and then discount that value by the required return of the stock to get the current years intrinsic value.
Now we can use the DDM formula to find the intrinsic value of the stock in the upcoming year.
The formula for DDM is D*(1+G)/(R-G)
D= 1.8
G= 0.126
R=0.14
1.8*(1+G)/0.14-0.126
=144.77
Discount it to find the present value
144.77/1.14
=128.5
The intrinsic value of the stock should be 128.5
Explanation:
<span>This is why the threat of potential entrants in this industry is so high. Because of all of the opportunities and financing plans, it is easy for someone who wants to start a restaurant to do so. The threat of potential entrants to other restaurants remains high because of new restaurants always popping up.</span>
Answer:
A. interest earned from state bonds
Explanation:
Since this is about the federal level tax, and the bonds in the statement are state bonds, they are <u>not taxable at federal level</u>. Everything mentioned in other examples (prizes, awards, commisions...) is taxable, no matter if it goes into earned or non-earned income.
However, these bonds can be taxable at state level, but that is irrelevant for this question.
Answer:
$5.73
Explanation:
The computation of the price of the put is shown below:
= Price of the corresponding call option - current price of put option + exercise price ÷ ( 1 + effective annual risk-free rate of interest) ^ number of months ÷ total months in a year
= $4.20 - $46 + $48 ÷ ( 1 + 0.04) ^ 3 months ÷ 12 months
= $4.20 - $46 + $48 ÷ 1.0098534065
= $4.20 - $46 + 47.5316513156
= $5.73
