The market price of a security is $50. Its expected rate of return is 14%, and the market price of the security is mathematically given as
MR=27.368
<h3>What will be the market price of the security if its correlation coefficient with the market portfolio doubles?</h3>
Generally, the equation for expected rate return is mathematically given as
RR=(Rf+beta*(Rm-Rf)
Therefore
RR=(Rf+beta*(Rm-Rf)
Beta= (13-7)/8
Beta=0.75
In conclusion, the market price of a security
MR=DPs/RR
Where
Po=DPS/RR'
DPS=40*0.13
DPS=$5.23
and
RR=&+1.5*8
RR=19%
Hence
MR=$5.23/0.19
MR=27.368
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Answer: 9.03%.
Explanation:
Given: The Two Dollar Store has a cost of equity of 11.9 percent, the YTM on the company's bonds is 6.2 percent, and the tax rate is 40 percent.
Debt to equity ratio is .54
i.e. 
Adding denominator to numerator on both the sides, we get,
i.e. Weighted equity = 
From (i)
Adding denominator to numerator on both the sides we get,
Thus, weight of debt=
Now,
Weighted average cost of capital=(Weight of equity) × (cost of equity)+(Weight of debt)×(Cost of debt)×(1-tax rate)
Hence, the weighted average cost of capital is 9.03%.
Answer:
Paying more cash to its creditors and stockholders than the amount it received from them (1)
Explanation:
Stockholders are the primary owners of the company who have invested their money in the company's shares i.e equity holders and expect a reasonable returns higher than their investment.
Creditors are money lenders like banks i.e debt holders who have given loan or bank overdraft to the company and expecting the company to pay back at an agreed date with interest.
A firm creates value by being able to invest money sourced from various investors into a viable project that guaranteed greater returns than the weighted average cost of capital.
