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3 years ago

A stock has a required return of 9%, the risk-free rate is 4.5%, and the market risk premium is 3%.

Business

1 answer:

Oliga [24]3 years ago

7 0

Answer:

The beta of the stock is 1.5

r = 0.12 or 12%

The stock's required rate of return (r) will increase to 12%.

Explanation:

The required rate of return or cost of equity is the minimum return that investors expect/require to invest in a stock of a company. The required rate of return on a company's stock can be calculated using the CAPM equation.

The formula for required rate of return (r) under this model is,

r = rRF + Beta * rpM

Where,

rRF is the risk free rate
rpM is the market risk premium

0.09 = 0.045 + Beta * 0.03

0.09 - 0.045 = Beta * 0.03

0.045 / 0.03 = Beta

Beta = 1.5

New rpM = 0.05

r = 0.045 + 1.5 * 0.05

r = 0.12 or 12%

The stock's required rate of return (r) will increase to 12%

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Answer:

a. $181,000

Explanation:

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Calculation of Net Income will thus be as follows :

Revenue Received $260,000

Unearned Revenue($65,000-$35,000) $30,000

Total Revenue $290,000

Less Expenses :

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Your company sponsors a 401(k) plan into which you deposit 10 percent of your $123,000 annual income. Your company matches 75 pe

jeyben [28]

Answer:

A) Your own Contribution in 401(K) is $12,000.

B) Total Value of fund after one year = $21,000 × (1 + 12%)

= $23,520.

Explanation:

A) Total Annual Income = $120,000

Contribution in 401(K) = 10% of income

= $120,000 × 10%

= $12,000

your own Contribution in 401(K) is $12,000.

Employee contribution after tax = $12,000 × (1 31%)

= $8,280

Contribution of employer = $12,000 × 75%

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Total Contribution = $12,000 + $9,000

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Total Contribution in one year is $12,000.

Yield on fund = 12%

Total Value of fund after one year = $21,000 × (1 + 12%)

= $23,520.

after tax return = ($23,520 -$8,280) / $8,280

= 184%

After tax return is 184%.

You don't have to pay that income tax until you withdraw the money

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Answer: False

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