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nekit [7.7K]
3 years ago
6

The common stock of Alpha Manufacturers has a beta of 1.14 and an actual expected return of 15.26 percent. The risk-free rate of

return is 4.3 percent and the market rate of return is 12.01 percent. Which one of the following statements is true given this information? To be correctly priced according to CAPM, the stock should have an expected return of 21.95 percent.
a. The actual expected return will graph below the Security Market Line.
b. The stock has less systematic risk than the overall market.
c. The stock is overpriced.
d. The actual expected stock return indicates the stock is currently underpriced.
Business
1 answer:
Gre4nikov [31]3 years ago
8 0

Answer: d. The actual expected stock return indicates the stock is currently underpriced.

Explanation:

According to CAPM, the expected return is:

= Risk free rate + beta * (market return - risk free rate)

= 4.3% + 1.14 * (12.01% - 4.3%)

= 13.09%

The actual expected return is greater than the CAPM expected return.

This stock is underpriced because it is bringing in a higher return than CAPM predicted based on the market.

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2. Zach filed his individual federal tax return for the year ending December 31, 2018 on April 15, 2019 and he owed $25,000. As
jeyben [28]

Answer:

$26,125

Explanation:

[($25,000 x 0.005) x 9 + $25,000]

=$26,125

Zach owe $26,125 as of December 31, 2019 because he did not fail to file - he failed to pay. Hence he owes the 0.5% per month or part of a month failure to pay penalty plus the already outstanding tax amount of $25,000 that he owed.

4 0
3 years ago
Change from the fair value method to the equity method Assume an investor company acquires for $256,000 an 8% investment in the
matrenka [14]

Answer:

Date         Account title and explanation      Debit        Credit

March 1    Equity investment                          $32,000

                ($612,000/17%)*8% - $256,000)

                       Unrealized holding gain                             $32,000

               (To adjust the value of equity investment)

Note: On 1 march, value of the investment value is increased which is unrealized based on 31 December fair value

6 0
3 years ago
Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $6.10 dividend every year, in perpetuity. If thi
Contact [7]

Answer:

7.56%

Explanation:

Calculation for the required return for Smiling Elephant

Using this formula

Required return =D/P0

Where,

D=$6.10

P0=$80.65

Let plug in the formula

Required return =$6.10/$80.65

Required return =0.0756×100

Required return =7.56%

Therefore the Required return for Smiling Elephant Inc will be 7.56%

5 0
3 years ago
To spur trade, four South American countries decide there will be no barriers to trade between the countries, agree on a common
Dmitriy789 [7]

Answer:

A free trade area

Explanation:

A free trade area comes to existence when two or more countries sign an agreement that eliminates or reduces trade barriers among themselves. Usually, nations in the same region sign a free trade agreement that encourages economic cooperation.  In a free-trade area, goods and services can move from one country to another with minimal or no government interference in terms of tariffs, embargo, quotas, or other prohibitions.

The four South American countries have formed a free trade area. They have agreed to economic cooperation that allows free flow of trade among the nations. The countries have established a trading block that will spur economic growth in each of them.

6 0
3 years ago
Assume that the governance committee states that all projects costing more than $70,000 must be reviewed and approved by the chi
rodikova [14]

Answer:

The correct answer is the difference between governance and management oversight.

Explanation:

In conflict and post-conflict situations it is necessary that the security sector is governed by the principles of effective governance and accountability, to prevent this sector from misusing its prerogatives, that the authorities abuse its control over the actors in the security sector and, above all, to build public confidence and establish or restore the legitimacy of the sector (UNODC, 2011). For this to happen, it is necessary that the security sector actors accept that their decisions and actions can be questioned and that any inappropriate behavior can have consequences such as compensation for victims or sanctions. Without this type of accountability and transparency, corruption and other inappropriate behavior can flourish (UNODC, 2011).

4 0
2 years ago
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