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ale4655 [162]
3 years ago
9

Consider the following information on three stocks: State of Economy Probability of State of Economy Rate of Return if State Occ

urs Stock A Stock B Stock C Boom .25 .27 .15 .11 Normal .65 .14 .11 .09 Bust .10 −.19 −.04 .05 A portfolio is invested 45 percent each in Stock A and Stock B and 10 percent in Stock C. What is the expected risk premium on the portfolio if the expected T-bill rate is 4.1 percent?
Business
1 answer:
PolarNik [594]3 years ago
5 0

Answer:

market premium = 0,0781 = 7.81%

Explanation:

We have to calculate the market return and then calcualte the premium as the difference between the expected return on the market and the risk-free rate:

We multiply each outcome by the stock weight. and then for the probability of occurence of that state of economy

Calculations for boom:

Change of boom x (weighted outcome A + weighted outcome B + weighted outcome C)

0.25    x    (0.45 x 0.15 + 0.45 0.27 + 0.1 x 0.05) = 0.05

\left[\begin{array}{cccccc}Stock&&B&A&C&Totals\\Weights&&0,45&0,45&0,1&&Boom&0,25&0,15&0,27&0,11&0,05&Normal&0,65&0,11&0,14&0,09&0,078975&bust&0,1&-0,04&-0,19&0,05&-0,00985&&&&&return&0,119125&\end{array}\right]

market expected return 0,1191

Market premium: 0,1191 - 0,041 = 0,0781

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Ashley has a large and growing collection of animated movies. She wants to replace her old television with a new LCD model, so s
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Answer:

$3,402

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3 years ago
AutomatedFry Inc. is the leading manufacturer of ventless deep fryers. It has developed a new high-capacity fryer. To identify t
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Lead generation.

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Harrison Inc. applies overhead based on machine hours. Harrison reports the following for the year just ended: Budgeted overhead
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Steven's Auto is trying to decide whether to lease or buy some new equipment costing $23,000 that has a life of three years, aft
jolli1 [7]

Answer:

$1,241

Explanation:

For computing the net advantage to leasing first we have to determine the total cash flow from leasing and total cash flow from buying which is shown below:

For leasing:

Year       Lease payment      PVF at 5.8%    Present value

1              $6,500                   0.9452             $6,144

2             $6,500                   0.8934             $5,807

3              $6,500                  0.8444              $5,489

Total outflow                                                   $17,440

For buy:

Year      Outflow or inflow     PVF at 5.8%    Present value

0            ($23,000)                    1                      ($23,000)

1              $1,610                       0.9452             $1,522

2             $1,610                        0.8934             $1,438

3              $1,610                       0.8444              $1,359

Total outflow                                                   $18,681

Now the net advantage to leasing is

= Buy outflow - leasing outflow

= $18,681 - $17,440

= $1,241

7 0
3 years ago
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