1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
timofeeve [1]
3 years ago
7

Suppose that the risk-free rate is 5% and that the market risk premium is 7%. What is the required return on (1) the market, (2)

a stock with a beta of 1.0, and (3) a stock with a beta of 1.7? Ehrhardt, Michael C.. Corporate Finance: A Focused Approach (p. 286). Cengage Learning. Kindle Edition.
Business
1 answer:
Nesterboy [21]3 years ago
3 0

Answer:

1.

r market = 0.12 or 12%

2.

r stock = 0.12 or 12%

3.

r Stock = 0.169 or 16.9%

Explanation:

The required rate of return can be calculated using the CAPM or Capital asset pricing model equation. The formula for required rate of return under this model is,

r = rRF + Beta * rpM

Where,

  • rRF is the risk free rate
  • rpM is the risk premium on market
  • r represents the required rate of return

1.

The beta of the market is always considered to be 1. Thus, the required rate of return on market would be,

r market = 0.05 + 1 * 0.07

r market = 0.12 or 12%

2.

For a stock whose beta is 1.0, the required rate of return would be same as that for market. So, the required rate of return for a stock with a beta of 1.0 is,

r Stock = 0.05 + 1 * 0.07

r Stock = 0.12 or 12%

3.

The required rate of return for a stock with a beta of 1.7 is,

r Stock = 0.05 + 1.7 * 0.07

r Stock = 0.169 or 16.9%

You might be interested in
Murphy had no stock transactions in 2018​, so the change in​ stockholders' equity for 2018 was due to net income and dividends.
MaRussiya [10]
Answer: your mom gave you money
5 0
3 years ago
Your non-technical manager is delighted with the idea of referring to common vulnerabilities by their nicknames, such as "Heartb
Llana [10]
We all agreed that y 7 is why s
4 0
3 years ago
What is an advantage of an adjustable-rate mortgage?
Anastaziya [24]
A drop in interest will result in lower payments because of its overall discretion value
9 0
3 years ago
Read 2 more answers
Stinehelfer Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $59 to buy from farmers and $2
snow_lady [41]

Answer:

Financial disadvantage from further processing = $(9)

Explanation:

<em>A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.  </em>

<em>Also note that all cost incurred up to the split-off point (the cost of crushing) are irrelevant to the decision to process further .  </em>

                                                                                                  $

Sales revenue after crushing                                                55                          

Sales revenue at the split-off point                                        <u>81</u>

Additional sales revenue                                                       26

Further processing cost                                                        <u> (35)</u>

Net income after further processing                                     <u> (9) </u>

Financial disadvantage from further processing = $(9)

<em>Kindly note that the allocated joint costs( cost of sugar and crushing) are irrelevant. This implies that whether or not the intermediate products are processed further the joint costs are irrelevant to the decision to process the beet juice further</em>.

4 0
3 years ago
Jiffy cake mix company developed a new brownie mix that is much improved over its current brownie mix. when a sales representati
Yanka [14]

It is company policy to get "slotting allowance" in order to secure shelf space for new brands.


Slotting allowance or fee is the expense charged to makers/producers by the market retailers for different reasons like keeping their items, stocking the item in its stockroom, or stock and IT support. The slotting allowance may likewise be charged on the marketing expenditure brought about by the organization for the item.

6 0
2 years ago
Other questions:
  • 8. Which of the following will cause a movement along the supply curve for oil? a. New technology to drill underwater in the Gul
    9·1 answer
  • Inventory turnover is calculated as _____. a) cost of merchandise sold divided by inventory b) cost of merchandise sold divided
    11·1 answer
  • _____ is probably the most important factor in determining the promotional mix. Select one:
    14·1 answer
  • What is a Financial market
    14·2 answers
  • Your company has a fixed monthly operating cost of $4173 (rent, fixed utilities, etc.) on top of the $5.13 it costs you to make
    7·1 answer
  • The state of competition is an industry, according to porter, depends on ______ basic forces.
    5·1 answer
  • The Global Capsule in Chapter 5 says perhaps the best variable to monitor and to use to decide where to begin doing business is
    14·1 answer
  • Using the following data, prepare a statement of revenues, expenditures, and changes in fund balance for the General Fund of Jas
    10·1 answer
  • Suppose the initial inflation rate and inflation target are both 2%, that the real federal funds rate is 2%, and that the econom
    5·1 answer
  • to prepare for a career in business communication, you need to become competent in which areas? (choose every correct answer.)
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!