Answer:
The stock should be trading at $14,74 today
Explanation:
In Capital Market Asset Pricing (CAPM) model. expected return = risk-free rate + beta*(market risk premium - risk-free rate)
= 5% + 1*(6%-5%) = 6%
If Analysts have a consensus view that the stock will be valued at $15.62 next year, then basing on expected return 6%, the stock price today should be
= $15.62%/(1+6%) = $14.74
Answer:
D. only A and B of the above are true.
- A. the market is inefficient.
- B. an unexploited profit opportunity exists.
Explanation:
In simple words, this question is asking why the optimal return or best possible return of an investment is actually higher than the real market return. Generally this can be explained by opportunity costs and profits, or maybe even market inefficiencies caused by external factors (e.g. taxes).
In economics, efficient companies operating in competitive markets will always have 0 economic profit in the long run, that means that the company has maximized its accounting profits and there is no other alternative investment that can provide the same returns.
The same concept applies here, when you maximize your potential returns, it means that there is no other security or investment should yield the same returns. If your returns are actually, it only means that you are missing an opportunity profit (by investing in some other security) or some type of market inefficiency or external factor has decreased the actual return of your investment.
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Answer:
The use of a trial balance:
a) This error will not cause the two sides of the trial balance to disagree. A compensating error has occurred, because the Cash Account should have been credited and the Salaries and Wages Expense debited with $600.
b) This error will cause the two sides of the trial balance to disagree. The amount debited is not the same amount credited. The Accounts Receivable should have been credited with $900, not the Service Revenue.
Explanation:
a) The trial balance ensures that the total values of the debit and credit sides agree. It shows that accounts have been correctly debited and credited in the general ledger, with equal amounts.
b) Compensating errors arise when two accounting errors offset themselves, because the same mistake made on the debit side is made on the credit side
Answer:
d. about 11.4 percent
Explanation:
% change in pound = ($2.05 - $1.95)/$1.95
= 5.1%
Effective financing rate = (1 + 6%)(1 + 5.1%) - 1
= 11.4%
Therefore, The effective financing rate for a U.S. firm that takes out a one-year, uncovered British loan is about 11.4 percent.
