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Yuri [45]
3 years ago
11

The common stock of Alpha Manufacturers has a beta of 1.18 and an actual expected return of 13.33 percent. The risk-free rate of

return is 3.3 percent and the market rate of return is 12.20 percent. Which one of the following statements is true given this information?
A. The stock has less systematic risk than the overall market.
B. To be correctly priced according to CAPM, the stock should have an expected return of 13.56 percent.
C. The actual expected stock return will graph above the security market line; thus the stock is underpriced.
D. The actual expected stock return indicates the stock is currently overpriced.
Business
1 answer:
nekit [7.7K]3 years ago
5 0

Answer:

D. The actual expected stock return indicates the stock is currently overpriced.

Explanation:

The actual rate of return of this stock = 13.33%

Rate of return using CAPM:

r = risk free rate + beta(Market return- risk free rate)

risk free = 3.3% or 0.033 as a decimal

beta = 1.18

market return = 12.20% or 0.1220 as a decimal

r = 0.033 + 1.18(0.1220 - 0.033)

= 0.033 + 0.10502

= 0.1380 or 13.80%

Since rate of return and price of a stock have inverse relationship, the actual rate of return is lower meaning that the stock is currently overpriced.

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Winston Corporation owns 25% of the voting stock of Tole Corporation and uses the equity method in recording the investment. Tol
Usimov [2.4K]

Answer:

c. debit to the investment account for $12,500.

Explanation:

The computation is shown below:

= Net loss reported × owning percentage

= $50,000 × 25%

= $12,500

Simply we multiplied the reported net loss and its owning percentage so that the accurate loss amount can come

Since it is a net loss, so it would be debited to the investment account for $12,500

Hence, all other options are wrong except option c.

5 0
3 years ago
Please fill in the blanks with appropriate option.
Fiesta28 [93]

Answer: Please refer to Explanation

Explanation:

1. Inflationary Gap.

Due to the availability of more disposal income due to tax cuts, more amount is being spent on consumption leading to a rise in actual GDP which is more than the potential GDP as the economy has not adjusted.

2. Output Gap.

This is the difference between the Actual GDP and the Potential GDP.

3. Demand Shock

This increases or reduces Aggregate Demand due but only temporarily.

4. Recessionary Gap.

This is where actual GDP falls below Potential GDP.

5. Supply Shock.

Like a demand shock, it suddenly increases or reduces the supply of goods and services. It is temporary as well.

6. Self Correction

Economists believe that in the long run, the Economy is capable of adjusting to shocks and returning to it's potential and natural levels.

8 0
3 years ago
McCabe Manufacturing Co.'s budget at 8,000 units of production includes $40,000 for direct labor and $4,000 for electric power.
sesenic [268]

Answer: variable costs of $49,500 and $23,000 of fixed costs

Explanation:

A flexible budget refers to the budget which adjusts to the volume levels of a company.

Based on the information given in the question, the variable cost will be:

= (44000/8000) x 90000

= $49500 variable

On the other hand, the fixed cost has been given as $23000.

Therefore, the flexible budget would show variable costs of $49,500 and $23,000 of fixed costs.

4 0
2 years ago
exercise 4-9A Calculate the balance of cash using a bank reconciliation (LO4-5) Spielberg Company's general ledger shows a check
algol13

Answer:

$22,789

Explanation:

One of the uses of the Bank Reconciliation Statement is to check the accuracy of the Cash Balance.

The Balance on the Bank Statement and that of the Cash Book in the Ledgers should always agree.

Bank Reconciliation Statement as a July 31

Balance as per Bank Statement                      $22,364

Add Lodgments not yet credited                       $1,745

Less unpresented checks                                 ($1,320)

Balance as per Cash Book                               $22,789

Therefore,

The balance of cash using a bank reconciliation is $22,789

5 0
3 years ago
At a price of $200, a cell phone company manufactures 100000 phones. At a price of $300, the company produces 300000 phones. Wha
valkas [14]

Answer:

2.5

Explanation:

P1=$200

P2=$300

S1=100000

S2=300000

The percentage change in price is:

\Delta P =\frac{300-200}{\frac{200+300}{2}}=0.4=40\%

The percentage change in supply is:

\Delta S =\frac{300000-100000}{\frac{100000+300000}{2}}=1=100\%

The price elasticity of supply is given by:

E=\frac{\Delta S}{\Delta P}=\frac{100\%}{40\%}=2.5

The price elasticity of supply is 2.5.

4 0
3 years ago
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