The management of a rental building faces a rent control situation, where it cannot charge more than $400 a month in rent on the
1 answer:
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Answer:
Answer is explained in the explanation section.
Explanation:
Note: First of all, this question is incomplete and lacks necessary data to calculate this question. However, I have found the similar question on the internet with complete data given. Additionally, I have shared that data as well in the attachment below for your convenience, Thanks.
Solution:
SD = Standard Deviation
Using utility function, E(R) = Rp - 0.005 x A x = 1.34 - 0.005 x 3x
Using utility function, E(R) = 1.093%
If the weight in the risky portfolio is let's say, "a" then,
weight in the risk-free asset = 1 - a
So,
E(R) = a x Rp + (1 - a) x Rf
1.093% = a x 1.34% + (1 - a) x 0.50%
Solving for "a"
a = 70.56% - weight in risky portfolio
and 1 - a = 29.44% - weight in risk-free asset.
Similarly, if you want a return of 1.10%,
we can follow the above steps and get
1.1% = a x 1.34% + (1 - a) x 0.5%
Weight in risky portfolio,
a = 71.43%
weight in risk-free asset,
1 - a = 28.57%
Answer:
11.14%
Explanation:
Blume's formula is used to combine both arithmetic and geometric returns. This is because using arithmetic growth rate exclusively would be overly optimistic for longer time horizons and on the other hand, using geometric growth rates exclusively would be overly pessimistic for short time horizons.
Using the attached formula, plug in the given numbers;
R(T) would be the sale growth rate we need to calculate.
R(T) =
R(T) =0.0257 + 0.0857
R(T) = 0.1114 as a decimal
Therefore, the forecast sales growth would be 11.14%
