Ask question

Ask question

All categories

2 years ago

15

The returns on the common stock of Maynard Cosmetic Specialties are quite cyclical. In a boom economy, the stock is expected to

return 22 percent in comparison to 9 percent in a normal economy and a negative 14 percent in a recessionary period. The probability of a recession is 35 percent while the probability of a boom is 10 percent. What is the standard deviation of the returns on this stock?

1 answer:

Maru [420]2 years ago

3 0

Answer: 12.51%

Explanation: Probability of normal = 100 - (35+10)=55%

Expected return = Respective return*Respective Probability

= (22*0.1)+(9*0.55)+(-14*0.35) = 2.25%

When

(a) Return = 22% , Probability = 0.1

$\therefore Probability\times (Return-Expected Return)^2$

$0.1\times(22-2.25)^2=39.006$

(b) Return = 9%, Probability = 0.55

$\therefore Probability\times (Return-Expected Return)^2$

$0.55\times(9-2.25)^2=25.05$

(b) Return = -14%, Probability = 0.35

$\therefore Probability\times (Return-Expected Return)^2$

$0.35\times(-14-2.25)^2=92.42$

Total=156.48%

$Standard deviation= [Total Probability \times (Return-Expected Return)^{2}\div Total probability]^{1/2}$

Standard deviation = 12.51%

You might be interested in

vazorg [7]

The amount your insurance company is willing to pay in case you,your property or others are hurt

8 0

2 years ago

A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warra

Murrr4er [49]

Answer:

Report a prior period adjustment decreasing retained earnings by $1,365,000.

Explanation:

Going by the question we can derive that $2,100,000 is the prior period's warranty. Consequently, it will be charged to the current year's earnings following the deduction of tax, 35%.

(2,100,000 *65) /100 = $1,365,000

This above calculation is so because Under the accrual basis of accounting...operating expense are reported on the income statement in the particular period when they took place or when they expire

4 0

2 years ago

Read 2 more answers

If labor productivities were exactly proportional to wage levels internationally, this would A) not negate the logical basis for

Irina18 [472]

Answer:

A)not negate the logical basis for trade in the Ricardian model.

Explanation:

Trade can be regarded as basic economic concept which involves the buying as well as selling of goods and services, having a compensation that is been paid by a buyer to a seller.

The Ricardian model can be regarded as model that incorporates the standard assumptions of a perfect competition. This model in it's simplest form give assumption of two countries that are producing two goods, but uses one factor of production, the goods here are usually assumed to be identical, or to be homogeneous, within as well as across countries. It should be noted that when there is higher wage, there will be greater number of workers that are willing to work and vice versa, which defined the relationship between wages and productivity. productivity gives the

measurement of how efficiently labor

is been utilized when producing goods and services.

It should be noted that If labor productivities were exactly proportional to wage levels internationally, this would not negate the logical basis for trade in the Ricardian model.

3 0

1 year ago

A seller received a rental payment of $100 in advance. At closing, the seller has "earned" only $32 of this rent. What should ap

allsm [11]

Answer:

$68 appears as the amount unearned but received (or still paid in advance) in the closing statement

Explanation:

Amount received in advance = $100

Amount earned = $32

Amount (in advance at closing) is the difference between the amount originally paid in advance and the amount earned

Amount (in advance at closing) = $100 - $32

= $68

The amount that will appear in the closing statement as rental payment still in advance is $68.

3 0

2 years ago

Lei Company accumulates the following adjustment data at December 31. 1. Services provided but not recorded total $1,000. 2. Sup

Zigmanuir [339]

Answer:

Type of adjustment (prepaid expenses, unearned revenues, accrued revenues, or accrued expenses)

1. Services provided but not recorded total $1,000. accrued revenues

2. Supplies of $300 have been used. accrued expenses

3. Utility expenses of $225 are unpaid. accrued expenses

4. Services related to Unearned service revenue of $260 were performed. accrued revenues

5. Salaries of $800 are unpaid. accrued expenses

6. Prepaid insurance totaling $350 has expired. accrued expenses

Status of Each Account before adjustment

1. Services provided but not recorded total $1,000. Revenue understated and cash/account receivable account understated

2. Supplies of $300 have been used. Supplies account overstated and supplies expense account understated

3. Utility expenses of $225 are unpaid. utility expense account understated and Liability account understated

4. Services related to Unearned service revenue of $260 were performed. Revenue understated and Unearned revenue overstated

5. Salaries of $800 are unpaid. Salaries Expense account understated and Liability account understated

6. Prepaid insurance totaling $350 has expired. Insurance expense account understated and Prepaid insurance overstated.

Explanation:

1. Revenue should be recorded when services are performed.

2. Used supplies should be transferred to supplies expenses account.

3. Utility expense should be recorded when it's been accrued.

4. Sales expense should be recorded when it's been accrued.

5. Prepaid Insurance should be transferred to Prepaid expense account when its been expired.

8 0

2 years ago