Answer:
d. rational investors could pick either A or B, depending on their level of risk aversion
Explanation:
In making investment decisions investors use various analysis to make an informed decision on which assets will suit their needs.
Two of such analysis are returns standard deviation.
Returns shows the percentage of original investment that is expected to come back as profit.
Standard deviation is the tendency of investment performance to deviate from a mean value.
The higher the standard deviation the more the risk of getting low returns or getting higher profit. This is well suited to risk takers.
The lower the standard deviation the less variance from a mean value, so risk averse investors will prefer this.
In the given scenario risk averse investors will prefer Investment A with expected return of 14% with a standard deviation of 4%. Because of the low standard deviation.
Risk takers will prefer investment B with expected return of 20% with a standard deviation of 9%. Because of the higher standard deviation.
Answer: A possible reason is a drop in the price of fresh fruits and vegetables.
Explanation: The revenues of Heinz have dropped in the second quarter and one very likely possibility is that the demand for their products are on the decline. The market demand for a product is affected by a number of factors and one of them is the price of close substitutes.
In this scenario, the close substitutes for Heinz products are fresh fruits and vegetables. The second quarter of the year (May, June and July) usually records lots of rainfall and good harvests of fresh foods. A good harvest encourages lower prices. If the price of these substitute food items reduces, the consumers would tend to buy more of those, that is, the demand for fresh fruits and vegetables would experience an increase while the demand for ketchup, packaged and processed foods would experience a decline. The decline would translate into lower sales figures and subsequently low revenues.
That is true, a lawsuit can be drawn against the third party.
Answer:
The price of the stock today is $21.58
Explanation:
The dividend is growing by three different growth rates. Thus, the three stage growth model of DDM will be used to calculate the price of the share today. Under DDM approach, we discount the expected dividends by the required rate of return to estimate the fair value of the stock today. The terminal value is calculated when the dividend growth becomes constant forever. To calculate the price of the stock today, we use next period's dividend D1.
The price per share = D1 / (1+r) + D2 / (1+r)^2 + ... + [(Dn * (1+g) / r - g) / (1+r)^n]
Price per share = 2 * (1+0.06) / (1+0.12) + 2 * (1+0.06) * (1+0.04) / (1+0.12)^2 + [(2 * (1+0.06) * (1+0.04) * (1+0.02) / (0.12 - 0.02) / (1+0.12)^2]
Price of stock today = $21.578 rounded off to $21.58
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