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Sphinxa [80]
3 years ago
14

8-12 REQUIRED RATE OF RETURN Suppose rRF 9%, rM 14%, and bi 1 3. a. What is ri, the required rate of return on Stock i? b. Now s

uppose that rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri? c. Now assume that rRF remains at 9%, but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?
Business
1 answer:
Nat2105 [25]3 years ago
3 0

Answer:

a = 0.74 or 74%

b(1) = 0.75 or 75%

b(2) = 0.73 or 73%

c(1) = 1 or 1%

c(2) = 0.61 or 61%

Explanation:

The stock i has a risk free rate of 9% with a market return of 14% and beta of 13, using the formula we get,

ri = rRF + bi x (rM – rRF)

Where rRF=9/100=0.09

bi =13

rm =14/100=0.14

Putting the values into the formula

= 0.09 + 13 x (0.14 – 0.09)

= 0.74 or 74%

b. (1)

Ri = rRF + bi x (rM – rRF)= 0.10 + 13 x (0.14 – 0.09)= 0.75 or 75%

Here the slope of SML remains constant, meaning the market risk premium will not change. As a result, the required return will increase by 1%.

b(2)

Ri = rRF + bi x (rM – rRF)= 0.08 + 13 X (0.14 – 0.09)= 0.73 or 73%

Here, the slope of SML remains constant, meaning the market risk premium will not change. As a result the required return will decrease by 1%.

c. (1)

Ri = rRF + bi x (rM – rRF)= 0.09 + 13 x (0.16 – 0.09)= 1 or 1%

Here, the slope of SML does not remain constant, meaning the market risk premium will change. As a result, the required return will increase.

(2)Ri = rRF + bi x (rM – rRF)= 0.09 + 13 x (0.13 – 0.09)=0.61 or 61%

Here, the slope of SML remains constant, meaning the market risk premium will not change. As a result, the required return will decrease by 13%.

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Peck corporation, a foreign subsidiary was acquired by a U.S. corporation on January 1, 2020. Determine the exchange rate used t
taurus [48]

Answer:

Land, Equipment, and Inventory will be restated on the closing date i.e. December 31, 2020. The rate of the currency exchange from local to foreign currency for equipment is on the day of purchase which is February 1, 2020.

Explanation:

1-Balance sheet items are restated on the closing date.

2-P & L items are restated on the transaction date.

As the items Land, Equipment and Inventory are all the balance sheet items, thus they will be stated on the closing date i.e. December 31, 2020.

Furthermore, the functional currency is foreign currency. Since the equipment is purchased in the domestic currency it has to be translated into the foreign currency at the rate as on the date of purchase i.e; February 1, 2020.

3 0
3 years ago
A job advertisement reads as follows: "Wanted, bright young men to sell athletic club memberships. Interested applicants should
ohaa [14]

Answer:

The group of options for this question are the following:

A. Yes, the ad makes clear the type of employee sought.

B. No, it is not acceptable as it discriminates against female applicants and does not give sufficient information about the organization or job requirements.

C. No, it is not acceptable as it discriminates against female applicants.

D. Yes, it is acceptable but would benefit from more information.

The correct answer is B. No, it is not acceptable as it discriminates against female applicants and does not give sufficient information about the organization or job requirements.

Explanation:

The basic concept when the company considers the publication of a job offer to fill a position, is to find the best possible candidate, the most qualified for what is sought. For this, the development of the offer is very important, in what terms it is being proposed, to which applicants it is directed, etc. If the job offer is created properly, it will not only get the applicant to the most capable position, but it will do so in the shortest possible time.

An effective offer must have a title that appeals, that contains added value, either because it brings a certain prestige to the position, excellent conditions for it or the image of an important professional projection within the company. For this, in order to attract the candidate's attention to the position, the text of the offer must be close and pleasant, with respectful but appealing language.

8 0
3 years ago
On March 31, 2021, Chow Brothers, Inc., bought 8% of KT Manufacturing’s capital stock for $51.5 million. KT’s net income for the
In-s [12.5K]

Answer and Explanation:

a. The Journal entries are shown below:-

Investment - Capital stock Dr, $51.5 million

         To Cash $51.5 million

(Being investment is recorded)

Unrealized holding gain or loss Dr, $15.5 million ($51.5 - $36.0)

         To Fair value adjustment $15.5 million

(Being fair value adjustment is recorded)

b. Unrealized holding gain or loss Dr, $5.5 million ($51.5 - $30.5 - $15.5)

        To Fair value adjustment $5.5 million

(Being fair value adjustment before sale is recorded)

Cash Dr, $30.5 million

Unrealized holding gain or loss Dr, $21 million

           To Investment - Capital stock $51.5 million

(Being sale of investment is recorded)

4 0
3 years ago
The number of new domestic wind turbine generators installed each year in a particular country has been forecast to increase at
kirza4 [7]

Answer:

2030

Explanation:

The computation of the total number of new generators including this year is shown below

Given that

(A) = 100

Common Ratio (r) = 1.15

n = 10

Now

Sum of 10 terms Sn is

= A × (r n - 1) ÷ (r - 1)

= 100 × (1.1510 - 1) ÷ (1.15 - 1)

= 100 × 3.0456 ÷ 0.15

= 2030

We simply applied the above formula so that the total number of new generators could come

5 0
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kari74 [83]

Answer:

$550,000

Explanation:

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Therefore the OPPORTUNITY COST will be $550,000

3 0
3 years ago
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