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
andreev551 [17]
3 years ago
15

Suppose you must estimate the cost of equity for a firm, and you have the following data: rRF = 5.5%; rM – rRF = 6%; b = 0.8; D1

= $1.00; P0 = $25.00; g = 6%; and rd = the firm's bond yield = 6.5%. What is this firm's cost of equity using the bond-yield-+-risk-premium approach? Use a 4% judgmental risk premium in your calculation.
Business
1 answer:
Sveta_85 [38]3 years ago
3 0

Answer:

rd+premium = 10.5%

using CAPM = 10.3%

Explanation:

Under bond-yield+ risk-premium approach

This method simply propose to add the bond yield with the estmated risk premium:

0.065 + 0.04 risk premium = 0.105

Ke= r_f + \beta (r_m-r_f)\\\\Where:\\r_f =$ risk free rate\\r_m= $ market rate\\\beta =non-diversifiable \:risk

r_f = 0.055

β = 0.8

(r_m-r_f) = 0.06

0.055 + 0.8(0.06) = 0.103 cost of capital using CAPM

You might be interested in
Bob and Rob have started a food delivery business together called Grub Galore in their college town. They have not incorporated
Neko [114]

Answer:

Partnership Business

Explanation:

Partnership business is a business enterprise owned, managed and financed by a minimum of two individuals for the purpose of making profit.

Grub Galore is owned by Bob and Rob which makes it a partnership business.

Advantages

1) Profit is shared by partners only.

2) It is financed by more than one person which makes capital more available.

3) Decision making is faster company to limited liability companies

Disadvantages

1) Loss is shared among partners only.

2) Death of one partner might lead to the end of the business.

3) Disagreement between partners might end the business.

5 0
3 years ago
A new municipal bond issue had a dated date of January 1, 2018. The first coupon was due on August 1, 2018. The customer bought
blsea [12.9K]

Answer:

1 month

Explanation:

The last coupon paid by this bond was made on August 1, 2018, and the transaction is made on September 1, 2018, therefore, only 1 month has passed since the last coupon was paid. Therefore, accrued interests will be charged for only 1 month.

When bonds are sold including accrued interests, they are said to be sold at their dirty price.

5 0
4 years ago
The type of deafness sometimes associated with balance problems is
neonofarm [45]
Hi! The answer is sensorinueral hearing loss
7 0
4 years ago
Consumption Goods Capital Goods
Ulleksa [173]

Answer: b. Because the opportunity cost of the fourth unit of capital is the consumption goods that must be given up for this economy to move from three units of capital to four units of capital, but the opportunity cost of four units of capital is  the amount of consumption goods that must be given up to go from zero units of capital to four units of capital.

Explanation:

The opportunity cost of the 4th unit of capital refers to how many units of consumption need to be given up for the economy to move from the third unit to the forth unit of capital. In other words, the economy needs to give up 4 more goods to move from the 3rd unit of capital to the fourth.

But if the Economy was to produce the entire 4 units of capital it would have to give up the entire 10 units of consumption in total.

7 0
3 years ago
What law says that borrowers must receive a good faith estimate of the closing costs within three business days of the loan appl
Dmitry_Shevchenko [17]

The answer is the Real Estate Settlement Procedures Act or RESPA. This act was intended to defend possible property holders and allow them to become more intelligent consumers. RESPA necessitates that creditors provide bigger amounts of information to potential borrowers at certain points in the loan settlement process. It also forbids the innumerable parties involved from paying kickbacks to each other.

5 0
4 years ago
Other questions:
  • Suppose a family has saved enough for a 10 day vacation (the only one they will be able to take for 10 years) and has a utility
    8·1 answer
  • What is the purpose of clarifying butter?
    13·2 answers
  • From selling strictly components to solving its​ customers' problems with more tailored offerings. this is an example of​ ______
    10·2 answers
  • The Dodd-Frank Act removed which group from decisions regarding the presidents of Federal Reserve Banks?
    10·1 answer
  • The purchasing manager assigned to the team had already worked with Dan in the past. However, a difference of opinion had soured
    5·1 answer
  • When longer-term employees' salaries are lower than those of workers entering the firm today, ______ has occurred.
    15·1 answer
  • Distinguish between private sector and public sector enterprises (by giving any two points of distinction).
    5·1 answer
  • 2. When the price of good A rises, people start to drink good B. In this case, what is good B considered?
    7·1 answer
  • Determine the monthly payment, total interest,
    14·1 answer
  • In the IS-LM model when government spending rises, in the short-run equilibrium, in the usual case the interest rate __________
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!