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
evablogger [386]
3 years ago
15

Mikkelson Corporation's stock had a required return of 12.50% last year, when the risk-free rate was 3% and the market risk prem

ium was 4.75%.
Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged.

What is the company's new required rate of return?

(Hint: First calculate the beta, then find the required return.) Do not round your intermediate calculations.

a. 16.50%

b. 13.04%

c. 12.87%

d. 12.71%

e. 14.36%
Business
1 answer:
enot [183]3 years ago
6 0

Answer:

a. 16.50%

Explanation:

Find the beta as of last year using CAPM;

CAPM ; r = risk free + beta(Market risk premium)

0.125 = 0.03 + beta(0.0475)

Subtract 0.03 from both sides;

0.125-0.03 = 0.0475beta

0.095 = 0.0475beta

Divide both sides by 0.0475;

0.095/0.0475 = beta

beta = 2

Next, use CAPM again to find the new required return with a market risk premium is 4.75%+ 2% = 6.75%

r =  0.03 + 2(0.0675)

r = 0.03 + 0.135

r = 0.165 or 16.5%

Therefore, the new required return is 16.5%

You might be interested in
A monopolist sells 2,000 units for $20 each. The total cost of 2,000 units is $30,000. If the price falls to $19, the number of
leonid [27]

Answer:

Decrease by $1

Explanation:

Given:

Old data:

Q0 = 2,000 units

P0 = $20

Total revenue before change = 2,000 x $20 = $40,000

After change in Price.

Q1 = 2,100 units

P1 = $19

Total revenue After change = 2,100 x $19 = $39,900

Computation of Marginal Revenue:

Marginal Revenue = (P1 - P0) / (Q1 - Q0)

= ($39,900 - $40,000) / (2,100 - 2,000)

= -100 / 100

= $(-1)

Marginal revenue will decrease by $1

8 0
3 years ago
A government deficit has increased from 30 to 50. The country's trade deficit is 100 and private savings equal 65 and investment
viva [34]

Answer:

If Ricardian neutrality holds true, after this change in the government's budget, private savings will equal 40.

Explanation:

S - I = X - M, where

S = Sp + Sg, where

Sp: private saving

Sg: Public saving = T - G

Sp + T - G - I = X - M

or,

Sp - I = (G - T) - (M - X) = Budget deficit - Trade deficit

Initially,

65 - 30 = 90 - 100 = - 10

When budget deficit falls to 50,

Sp - 90 = 50 - 100

Sp = - 50 + 90 = 40

Therefore, If Ricardian neutrality holds true, after this change in the government's budget, private savings will equal 40.

7 0
3 years ago
In your own opinion, what is the advantages and disadvantages of having a business website​
dexar [7]

Answer:

An advantage is makin money but also You have to make your life seem perfect

Explanation:

5 0
3 years ago
How is a bond like a loan
Ostrovityanka [42]
Well a bond is a government loan where they take ur money and pay u back with interest usually low interest tho
7 0
3 years ago
A bank loan has been given to a customer at a bank with a FIXED nominal interest rate of 13%. The real
dmitriy555 [2]

Answer:

The new real interest rate is 15%

and the lender was hurt.

O 15%; lender

Explanation:

a) Data and Calculations:

Fixed nominal interest rate = 13%

Real interest rate for the bank's profit margin = 10%

Inflation rate = 3% (13% - 10%)

Unanticipated inflation rate = 7%

Nominal interest rate = 17% (10% + 7%)

But the bank could not increase its fixed nominal interest rate to match the nominal interest rate.

6 0
3 years ago
Other questions:
  • Based on the following information from ABC Company's financial analysis, which one of the following statements is NOT true?
    5·1 answer
  • The main advantage of diversification as an investment policy is that it
    13·1 answer
  • A small clothing firm currently produces 50,000 shirts and blouses per month. The cost of its factory, raw materials, and labor
    11·1 answer
  • Stanton Inc. is considering the purchase of a new machine, which will reduce manufacturing costs by $5,000 annually and increase
    7·1 answer
  • Warren and shirley want to avoid having a balance due next year. which of the following can they do
    11·1 answer
  • An income statement for Sam's Bookstore for the first quarter of the year is presented below:
    13·1 answer
  • Waterway Industries can produce and sell only one of the following two products: Oven Contribution Hours Required Margin Per Uni
    9·1 answer
  • Where is Shengyren based
    15·1 answer
  • Which of the following is true about having a good credit score?
    14·1 answer
  • A bond issue on June 1, 2016, has interest payment dates of April 1 and October 1. Bond interest expense for the year ended Dece
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!