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dexar [7]
3 years ago
15

Consider the following information: Portfolio Expected Return Beta Risk-free 6 % 0 Market 10.2 1.0 A 8.2 1.4 a. Calculate the re

turn predicted by CAPM for a portfolio with a beta of 1.4. (Round your answer to 2 decimal places.) b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
Business
1 answer:
denpristay [2]3 years ago
6 0

Answer:

a. 11.88%

b. -3.68%

Explanation:

Given that

Risk free rate = 6%

Beta = 1.4%

Market rate = 10.2%

Risk free rate = 6%

Alpha return = 8.2%

a. The computation of expected return of portfolio is given below:-

= Risk free rate + Beta (Market rate - Risk free rate)

= 6% + 1.4% (10.2% - 6%)

= 11.88%

b. The calculation of Alpha of portfolio is shown below:-

= Alpha return - Expected return

= 8.2% - 11.88%

= -3.68%

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Answer:

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If you carry out the new project the ROI of your division will decrease.

3. As manager of this division, given your incentive compensation plan, would you be motivated to make the new investment?

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What is the maximum amount a firm should pay for a project that will return $15,000 annually for 5 years if the opportunity cost
vampirchik [111]

Answer:

The firm should pay $46907.57 for the given project.

Explanation:

Given information:

Return = $15000 annually

Time = 5 years

Opportunity cost = 18%

The formula for payment is

PV=R(\frac{1}{OC}-\frac{1}{OC(1+OC)^t})

where, R is return, OC is opportunity cost, t is time in years.

Substitute R=15000, t=5 and OC=0.18 in the above formula.

PV=15000(\frac{1}{0.18}-\frac{1}{0.18(1+0.18)^5})

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8 0
2 years ago
If equilibrium GDP is $250 billion less than the targeted level of GDP, and the Multiplier Model has an mpe of 0.75, then we can
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Answer:

c. increasing; $62.5

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The computation is shown below;

As we know that

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= 1 ÷ 1 - 0.75

= 1 ÷ 0.25

= 4

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= $62.5

Hence, the correct option is c.

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g. Cash payment                         $225,000

h. Cash payment                         $1475000    

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