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igor_vitrenko [27]
3 years ago
13

Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 2

.20%. You now receive another $14.50 million, which you invest in stocks with an average beta of 0.65. What is the required rate of return on the new portfolio
Business
1 answer:
Ronch [10]3 years ago
3 0

Answer:

7.83%

Explanation:

To calculate the required rate of return we need to portfolio beta.

Portfolio beta is the average beta calculated on the basis of weightage of each investment. The beta of every investment is multiplied with the weightage of each investment in a portfolio. All the value is added to get the portfolio beta.

Total Portfolio after addition = $10 million + $14.5 million = $24.5 million

Portfolio Beta = ( Existing beta x Existing Weightage) + ( New Stock beta x New Stock Weightage)

Portfolio Beta = ( 1.05 x 10/24.5 ) + ( 0.65 x 14.5/24.5 )

Portfolio Beta = 0.43 + 0.38 = 0.81

We will use CAM to calculate the revised required rate of return

Capital asset pricing model measure the expected return on an asset or investment. it is used to make decision for addition of specific investment in a well diversified portfolio.

Formula for CAPM

First Calculate the market premium from existing portfolio

Required Rate of return = Risk free rate + beta ( market return - risk free rate )

Required Rate of return = Rf + β ( Rm - Rf )

9.50% = 2.2% + 1.05 ( Mp )

9.5% - 2.2% = 1.05 ( Mp )

7.3% = 1.05 ( Mp )

Mp = 7.3% / 1.05

Mp = 6.95%

Place this Market premium in revised rate of return calculation

Cost of Capital = Rf + β ( Rm - Rf )

Cost of Capital = 2.20% + 0.81 ( 6.95% )

Cost of Capital = 7.83%

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The sentence that shows the disadvantage of a questionnaire is option D. The sample of individuals who respond may not be representative of the population.

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Therefore, the correct answer is option D. The sample of individuals who respond may not be representative of the population.

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3 0
2 years ago
The Starr Co. just paid a dividend of $1.85 per share on its stock. The dividends are expected to grow at a constant rate of 4 p
Natasha2012 [34]

Answer:

Explanation:

Last dividend = $1.85 (D0)

growth rate = 4% (g)

Current year dividend (D1) = 1.85*(1+0.04) = $1.924

r = 12%

Current price = D1/(r-g) = 1.924/(0.12-0.04) = 24.05

Price in 3 years = D4/(r-g) = D0*(1+g)^4/(r-g) = 1.85*1.04^4/0.08 = $27.0529792

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7 0
3 years ago
As a result of a thorough physical inventory, Sheridan Company determined that it had inventory worth $320800 at December 31, 20
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Answer:

Sheridan Company

The correct amount of inventory that Sheridan should report is:

= $367,100

Explanation:

a) Data and Calculations:

December 31 Inventory based on physical inventory =      $320,800

Goods held on consignment by Herschel =                            46,300

December 27, FOB destination goods ($22,000)                   0

Correct amount of inventory that Sheridan should report $367,100

b) Goods on consignment are generally the property of the consignor (supplier) and not the consignee's (retailer's).  Therefore, they must appear in the balance sheet of the consignor.  Goods on FOB destination remain the property of the supplier until they reach the buyer's destination.  This is why it is not included above.

6 0
2 years ago
The following information is available for Patrick Products for the year: Budgeted sales during the year 5,000 units Actual sale
cupoosta [38]

Answer:

$125,000 Adverse variance as the cost actually incurred is higher.

Explanation:

The first step here is to find the Flexed Variable Overhead Cost by using the unitary method:

Budgeted overhead cost for 10,000 budgeted hrs = $2500,000

Budgeted overhead cost for 1 budgeted hrs = $2500,000 / 10000 bud. hrs

Budgeted overhead cost for 1 budgeted hrs = $250 per standard hr

And as we know that

Flexed Variable Overhead Budget = Actual Units * Budgeted overhead cost for standard hr

By simply putting values we have:

Flexed Variable Overhead Budget = 9000 hours * $250 per standard hr

= $2,2500,000

Now we will find the Flexible-budget Variable Overhead Variance by taking the difference of Variable overhead flexible budget and Actual Variable Overhead.

Flexible-budget Variable Overhead Variance = Variable overhead flexible budget - Actual Variable Overhead

By putting the values we have:

Flexible-budget Variable Overhead Variance = $2,2500,000 - $2,375,000

= $125,000 Adverse variance as the cost actually incurred is higher.

6 0
3 years ago
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