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zalisa [80]
3 years ago
10

Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A and B. Which of the followi

ng would occur if the market risk premium increased by 1% but the risk-free rate remained constant?a. The required return on Portfolio P would increase by 1%.b. The required return on both stocks would increase by 1%.c. The required return on Portfolio P would remain unchanged.d. The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.
Business
1 answer:
lorasvet [3.4K]3 years ago
4 0

Answer:

a. The required return on Portfolio P would increase by 1%

Explanation:

Assume that in the given question, the Market risk premium is 7% while the risk free return is 5%, then according to the Capital asset pricing model(CAPM), the expected return of stock A and B will be calculated as follows:

CAPM=Risk free return+Beta(Market risk premium)

Expected Return on stock A=5%+0.70*7%=9.9%

Expected Return on stock B=5%+1.30*7%=14.1%

Since the equal amount of 50% of portfolio P has been invested in the stock A and B, therefore, the return on the portfolio P shall be calculated as follows

Expected return on portfolio P=0.50*9.9%+0.50*14.1%=12%

If the market risk premium is increased by 1% i.e. from 7% to 8%, then the expected return of the Stock A and B shall be calculated as follows:

Expected Return on stock A=5%+0.70*8%=10.6%

Expected Return on stock B=5%+1.30*8%=15.4%

Expected return on portfolio P=0.50*10.6%+0.50*15.4%=13%

So the expected return on portfolio P has been increased by 1% i.e. from 12% to 13% when the market risk premium has been increased by 1%.

Based on the above calculations, the answer shall be a. The required return on Portfolio P would increase by 1%

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Answer:

Pretax financial income is $3,350,000.00

Explanation:

Fleming's pretax financial income is the taxable income for 2018 plus the increase in cumulative taxable temporary difference in 2018.

Taxable income is $4,000,000

Difference in cumulative  taxable difference=$1,600,000-$2,250,000

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pretax  financial income=$4,000,000+(-$650,000)

                                                    =$4,000,000-$650,000

                                                    =$ 3,350,000.00  

The pretax financial income for year 2018 is  $3,350,000.00  

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4 years ago
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Answer:

B) False

Explanation:

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Recher Corporation uses part Q89 in one of its products. The company's Accounting Department reports the following costs of prod
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Answer:

Recher Corporation:

a) Financial impact of buying part Q89:

i) Relevant costs for In-house production of part Q89 are the avoidable costs:

Direct materials - $7.60

Direct labour - $4.20

Variable overhead - $8.30

Supervisor's salary $3.20

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Avoidable cost = $24.11 per unit

Total = $24.11 x 6,200 = $149,482

ii) Relevant cost of buying outside equals outside price minus additional segment savings = (6,200 x $27) - $15,600 = $151,800

When i) is compared with ii), it shows that it would cost more to buy outside ($151,800) than to produce the part in-house ($149,482).

b) The alternative the company should choose is to produce in-house.

Explanation:

a) The avoidable general overhead of $0.81 was obtained by dividing $5,000 of general overhead by 6,200 units, i.e. $5,000 / 6,200.

b) The depreciation for the special equipment is not included as it is not relevant.  It must be incurred no matter the option chosen.

c) The relevant cost of buying the part outside was reduced by $15,600 since this amount would be realized as additional margin with the choice.

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When employees know they can freely express themselves without being reprimanded, they better express themselves about challenges encountered.

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Answer:

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So, the per unit would equal to

= $41,000 ÷ 12,400 units

= $3.31 per unit

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