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
Shalnov [3]
3 years ago
9

Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%,

respectively. The beta of A is 0.7, while that of B is 1.4. The T-bill rate is currently 5%, whereas the expected rate of return of the S&P 500 index is 13%. The standard deviation of portfolio A is 12% annually, that of B is 31%, and that of the S&P 500 index is 18%. a. Calculate the alphas for the two portfolios. (Round your answers to 1 decimal place.)
Business
1 answer:
monitta3 years ago
8 0

Answer:

Alpha for A is 1.40%; Alpha for B is -0.2%.

Explanation:

First, we use the CAPM to calculate the required returns of the two portfolios A and B given the risks of the two portfolios( beta), the risk-free return rate ( T-bill rate) and the Market return rate (S&P 500) are given.

Required Return for A: Risk-free return rate + Beta for A x ( Market return rate - Risk-free return rate) = 5% + 0.7 x (13% - 5%) = 10.6%;

Required Return for A: Risk-free return rate + Beta for B x ( Market return rate - Risk-free return rate) = 5% + 1.4 x (13% - 5%) = 16.2%;

Second, we compute the alphas for the two portfolios:

Portfolio A: Expected return of A - Required return of A = 12% - 10.6% = 1.4%;

Portfolio B: Expected return of B - Required return of B = 16% - 16.2% = -0.2%.

You might be interested in
The Rogers Corporation has a gross profit of $704,000 and $333,000 in depreciation expense. The Evans Corporation also has $704,
Reil [10]

Answer:

a. Cash Flow Rogers =  $441,000

Cash Flow Evans = $327,520

b. $113,480

Explanation:

The computation of the cash flow for both companies are shown below:

a. For Cash Flow Rogers

= Gross profit - Selling and administrative expense - income tax expense + depreciation expense × tax rate

where,  

Income tax expense = (Gross profit - Selling and administrative expense) × income tax rate  

= ($704,000 - $191,000) × 40%  

= $205,200

And, the other items values would remain the same

Now put these values to the above formula  

So, the value would equal to

= $704,000 - $191,000 - $205,200 + $333,000 × 40%

= $307,800 + $133,200

= $441,000

For Cash Flow Evans

= Gross profit - Selling and administrative expense - income tax expense + depreciation expense × tax rate

where,  

Income tax expense = (Gross profit - Selling and administrative expense) × income tax rate  

= ($704,000 - $191,000) × 40%  

= $205,200

And, the other items values would remain the same

Now put these values to the above formula  

So, the value would equal to

= $704,000 - $191,000 - $205,200 + $49,300 × 40%

= $307,800 + $19,720

= $327,520

b. The computation of the difference in cash flow between the two firms are shown below:

= Cash Flow Rogers - Cash Flow Evans

= $441,000 -  $327,520

= $113,480

5 0
3 years ago
Melanie graduated from the College of Business at the University of Arizona. What type of higher education Institution did she a
Rom4ik [11]
She attended a university
8 0
3 years ago
All of the following are ways to calculate different versions of ROI​ except: A. Return on sales x investment turnover B. Income
Virty [35]

Answer:

The answer is D

Explanation:

The formula - Revenues​ / Total Assets is not one of the ways to calculate Return on Investment (ROI)

Return on Investment (ROI) is a ratio

net profit to cost of investment(total money invested the project or compnay)

The numerator must be profit while the denominator must be related to cost of Investment.

In all of the options, it is only option D that has revenue(sales) as the numerator which makes it automatically wrong.

7 0
3 years ago
Who appoints the chairman of the board of governors of the federal reserve system ​
ELEN [110]

The chair is nominated by the President of the United States from among the members of the Board of Governors, and serves a term of four years after being confirmed by the United States Senate.

7 0
3 years ago
Read 2 more answers
1. A public relations manager plans to delegate crisis communications responsibilities to a subordinate. What characteristic wil
pashok25 [27]

The characteristic that the manager needs to assess of the subordinate prior to delegating responsibilities is:

  • Performance readiness

The type of leadership training that is being provided by the human resource director is:

  • Situational

<h3>What is Situational Leadership?</h3>

Situational leadership is seen when a manager delegates tasks based on the performance readiness of his staff.

The performance readiness in this case combines the ability of the person receiving the task and their willingness to execute the assigned task.

Learn more about situational leadership here:

brainly.com/question/14564324

#SPJ1

8 0
2 years ago
Other questions:
  • Hi, I'm 16 almost 17 next month and I'm getting a job at McDonald's. I am just curious about how much my first check will be if
    5·1 answer
  • Refer to the original data. assume that the company sold 18,000 units last year. the sales manager is convinced that a 10% reduc
    6·1 answer
  • What are three techniques stockholders can use to motivate managers to maximize their stock’s long-run price? Should managers fo
    5·1 answer
  • Which of the following MOST influences your credit score?
    9·1 answer
  • You find a certain stock that had returns of 16 percent, −9 percent, 23 percent, and 24 percent for four of the last five years.
    8·1 answer
  • What is the main purpose for the operation bank
    11·1 answer
  • Why does the government oversee the provision of public goods?
    5·1 answer
  • What is total surplus with a tax equal to?.
    9·1 answer
  • The time value of money is explicitly considered in which one of the following capital budgeting method(s)?
    14·1 answer
  • Menlo Company distributes a single product. The company's sales and expenses for last month follow:
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!