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Llana [10]
3 years ago
11

Themarketpriceofasecurityis$50.Itsexpectedrateofreturnis14%.Therisk-freerateis6%, and the market risk premium is 8.5%. What will

be the market price of the security if its correla- tion coefficient with the market portfolio doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity.
Business
1 answer:
mezya [45]3 years ago
5 0

Answer:

$31.82

Explanation:

market price $50

expected rate of return /Re) = 14%

Div = $50 x 14% = $7

risk free rate (Rf) = 6%

market premium (Rm - Rf) = 8.5%

beta = ?

14% = 6% + (beta x 8.5%)

beta x 8.5% = 14% - 6% = 8%

beta = 8% / 8.5 = 0.941

if beta doubles to 1.882, then Re will be:

Re = 6% + (1.882 x 8.5%) = 22%

new market price of the stocks = $7 / 22% = $31.818 = $31.82

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How will a low inflation rate in an exporting country affect its economy?
Alla [95]

Answer:

D, A

Explanation:

3 0
3 years ago
Kline Construction is an all-equity firm that has projected perpetual earnings before interest and taxes of $628,000. The curren
ArbitrLikvidat [17]

Based on the information given the levered value of the firm is $3,824,318.

First step is to calculate the Unlevered firm value

Unlevered firm value = EBIT(1 - Tax) / Cost of equity

Unlevered firm value= $628,000 x (1-.35)/.176

Unlevered firm value= $628,000 x (1-.35)/.176

Unlevered firm value = $628.000×.65/.176

Unlevered firm value = $2,319,318

Second step is to calculate Levered firm value

Levered firm value = Unlevered firm value + (Tax rate× Debt))

Levered firm value= $2,319,318 + (.35 x $4,300,000)

Levered firm value= $2,319,318 +$1,505,000

Levered firm value = $3,824,318

Inconclusion the levered value of the firm is $3,824,318.

Learn more about levered value here:brainly.com/question/20067496

8 0
2 years ago
Mr. Isaac is lending Gh₵20000 to Mr. Hayford, to be repaid over five years. Mr. Isaac would like to effect a policy on Mr. Hayfo
Alla [95]

Question:

Mr. Isaac is lending Gh₵20000 to Mr Hayford, to be repaid over five years. Mr Isaac would like to effect a policy on Mr Hayford’s life to cover the loan should Mr Hayford die. Mr Hayford would like to insure Mr Isaac’s life just in case he dies and the beneficiaries of his will insist that the loan be repaid early.

(a)​ What is the extent of insurable interest in each case?

(b) ​Consider any necessary action if the loan was later repaid earlier than anticipated what happens to the policy?

Answer:

To answer the question (a), one must first understand the concept of <em>Insurable Interest.</em>

A policyholder is said to have an insurable interest in a subject matter whenever the subject matter of a contract provides some financial gain to them and would lead to a financial loss if damaged, destroyed, stolen or lost.

For example, if I purchase a car for my use for $10,000, theft of or damage to that car will translate to financial loss to me. Therefore, I have an insurance interest in the car. This qualified me to Insure the car against loss arising from any form of insurable damage, or theft.

In question (a) there are two cases.

<em>Case I - Mr Isaac would like to effect a policy on Mr Hayford’s life to cover the loan should Mr Hayford die.</em>

Mr Isaac, in this case, has full insurable interest on Mr Hayfords life. If Mr Hayford dies,  Mr Isaac will be put in a financial loss to the tune of Gh₵20000.

<em>Case II - Mr Hayford would like to insure Mr Isaac’s life just in case he dies and the beneficiaries of his will insist that the loan be repaid early. </em>

Mr Hayford does an insurable interest on Mr Isaac's life. This insurable interest arises due to the possibility (as given in the question) that Isaacs family have the power to request for the loan earlier than it ought to have been paid.

The insurable interest arises because paying back the loan earlier than anticipated, may put Mr Hayford in financial distress and may lead to financial and economic loss. If the loan is meant for the running of his business, the business may fold up, and he may forfeit all the assets of the business.

In a real-life scenario, this can all be prevented by ensuring that the terms of the loan are documented in a contract which must be ratified by both parties. In this contract, clauses preventing the lender from cutting short the tenure of the loan can be inserted. This is less expensive and easier to administer.

(b) In each of the cases above, if the loan is paid back earlier than anticipated:

i. Under duress from the family: The provision of the policy protecting the interest of Mr. Hayford kicks in and makes good the loss to mitigate it and terminates afterwards.

ii. By volition by Mr Hayford: The policy terminates immediately as the insurable interest he has on Mr Isaac's life becomes extinct.

Cheers!

6 0
3 years ago
Couurtney bought a shirt for $24. with a coupon for 25% off. what was the original price of the shirt before the discount
kiruha [24]
Let the original price be x.

then,

x- 25% of x= 24
x- 25x/100 = 24
x-   x/4=24
3x/4=24

3x= 96

x= 32

in short...the original price= 32 dollars

3 0
3 years ago
Mackenzie is responsible for buying a week's supply of food and medication for the puppies and kittens at a local shelter. the f
Ira Lisetskai [31]
The budget is $4,240.

There are 164 kittens and 24 puppies.
Let
x = amount spent on each kitten
y =  amount spent on each puppy.

The cost for each puppy is twice a much as that for a kitten. Therefore
y = 2x                  (1)

The available amount is $4,240, therefore
164x + 24y = 4240          (2)

Substitute (1) into (2).
164x + 24(2x) = 4240
212x = 4240
x = $20
y = 2x = $40

Answer: $40 for each puppy.

7 0
3 years ago
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