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Contact [7]
3 years ago
12

Company A has a beta of 0.70, while Company B's beta is 1.20. The required return on the stock market is 11.00%, and the risk-fr

ee rate is 4.25%. What is the difference between A's and B's required rates of return?
Business
2 answers:
Serhud [2]3 years ago
6 0

The difference between A's and B's required rates of return is E. 3.38%

<h3>Explanation: </h3>

Company A has a beta of 0.70, while Company B's beta is 1.20.  The required return on the stock market is 11.00%, and the risk-free rate is 4.25%.  What is the difference between A's and B's required rates of return?  (Hint: First find the market risk premium, then find the required returns on the stocks.)

a..2.75%

b. 2.89%

c. 3.05%

d. 3.21%

E. 3.38%

The Capital Asset Pricing Model (CAPM) is the relationship between systematic risk and expected return for assets, and particularly stocks. CAPM is widely used to pricing risky securities throughout finance and generating expected returns for assets given the risk of those assets and cost of capital.

Company A has a beta of 0.70

Company B's beta is 1.20.  

The required return on the stock market is 11.00%,

The risk-free rate is 4.25%.  

Therefore Risk Premium is: 11% - 4.25% = 6.75%.

Feed into the CAPM and you can find the returns of  8.975% for A and 12.35% for B

A rate of return is the net gain or loss on an investment over a specified time period.  A rate of return is expressed as a percentage of the investment's initial cost.

Learn more about rates of return brainly.com/question/1789817

#LearnWithBrainly

kiruha [24]3 years ago
5 0

Answer:

The difference between A and B Required Rate of Return is 3.38%

Explanation:

As we know that required rate of return we use CAPM formula that is

Required rate of return = Rf + (Rm - Rf) x Beta

Stock A Return = 4.25% + (11% - 4.25% )  x 0.70

Stock A return = 8.98%

Stock B Return = 4.25% + (11% - 4.25%) x 1.20

Stock B Return = 12.35%

Difference between Return = Stock B Return - Stock A Return

Difference between Return = 12.35% - 8.98%

Difference between Return = 3.38%

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Answer:

In the case of Fresher Goods, Inc.v. Vernon, the trial court will possibly conclude that Vernon must complete the portion of the payment which has already been compensated for as a result of partial results.

Explanation:

Vernon accepted partial payment for the sold goods. While the Law of Frauds demanded that any contract for the selling of goods at a price of $500 or more be enforceable in writing, the oral arrangement was partially compensated and agreed by all parties. That part of the deal was binding, so Vernon would supply 100 corn bushels to Fresher for $1.25 per bushel.

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3 years ago
Jackson has the choice to invest in city of Mitchell bonds or Sundial, Incorporated corporate bonds that pay 5.8 percent interes
Ber [7]

Answer:

4.524%

Explanation:

Jackson's marginal tax rate = 22%

after tax return of Sundial Incorporated bonds = 5.8% x (1 - 22%) = 4.524%

since municipal bonds are not taxed by the federal government, in order to compare the yields we must calculate the after tax return of corporate bonds. On the other hand, federal bonds do not pay state and local taxes.  

3 0
3 years ago
__________ Is not just for technology companies. Haemonetics, a blood management solutions company, purchased Hemerus Medical wh
aliina [53]

Answer:

B) Innovation by Acquisition.

Explanation:

<u>Innovation by Acquisition </u>Is not just for technology companies.

We can analyze this statement from the example contained in the question above. For the acquisition of Hemerus Medical, by Haemonetics, a blood management solutions company, provided access to innovative blood collection and storage techniques.

Therefore, the acquisition innovation strategy is effective in all organizational segments, as the acquisition of a new company can give access to new forms of operation, new technologies, methods and procedures that will guarantee the innovation and the improvement of the systems of a company. organization.

8 0
3 years ago
Read 2 more answers
Chen Company’s Small Motor Division manufactures a number of small motors used in household and office appliances. The Household
liq [111]

Answer:

a. $11

b. $35

c. If the transferring division does not have excess capacity,this would mean that some units that could have been sold externally would be transferred internally and this creates an opportunity cost. Opportunity costs increase the transfer price.However no opportunity cost exist if transferring division has excess capacity and hence a lower transfer price.

Explanation:

The minimum acceptable price is the price that is acceptable to the transferring division and out of a range of acceptable prices, it is that which would be the best for the company.

When there is excess capacity.

Note : No opportunity costs would exist.

Minimum acceptable price = Variable Cost - Internal Savings + Opportunity Cost

                                            = $11

When there is excess capacity.

Note : Opportunity costs would exist.

Minimum acceptable price = Variable Cost - Internal Savings + Opportunity Cost

                                            = $11 + ($35 - $11 )

                                            = $35

Why Capacity of transferring division (Small Motor Division) has an effect on the transfer price.

If the transferring division does not have excess capacity,this would mean that some units that could have been sold externally would be transferred internally and this creates an opportunity cost. Opportunity costs increase the transfer price.However no opportunity cost exist if transferring division has excess capacity and hence a lower transfer price.

3 0
3 years ago
1. Russell's of Townville needs to borrow $48,000 for one year. The bank requires a 10 percent compensating balance on any amoun
babunello [35]

Answer:

D. 10.0%

Explanation:

As the bank reqiresd 10% compensating balance the actual amount unrestricted for the loan is 48,000 x (1 - 10%) = 43,200

and from this amount we have to solve for the effective rate:

principal x rate = interest

48,000 x 0.09 = 4,320

now we divide the interest over the actual principal to know the effective rate:

4,320 / 43,200 = 0.10 = 10%

8 0
3 years ago
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