Answer:
Portfolio Return = 11.975%
Explanation:
The portfolio return is calculated by taking the weights of individual securities in a portfolio and multiplying them by the return of individual securities. The formula can be written as,
Portfolio return = wA * rA + wB * rB
Where,
- wA is the weight of security A
- rA is the return on security A
- wB is the weight of security B
- rB is the return on security B
The risk free asset has a beta of zero.
Let the weight of risk free asset be x. The weight of risky asset is 1-x.
Portfolio beta = 0.975 = x * 0 + (1-x) * 1.3
0.975 = 1.3 - 1.3x
0.975 - 1.3 = -1.3x
-0.325 / -1.3 = x
x = 0.25
Portfolio return = 0.25 * 0.032 + (1-0.25) * 0.149 = 0.11975 or 11.975%
The statement, investor perception on the risk of bonds will raise their desired return is true.
The higher an investment's risk, the greater its potential returns should be. By contrast, a very safe and low-risk investment should generally offer low returns. So, this investor perception will raise the desired return of the risk of bonds.
Generally, the higher the potential return of an investment, the higher the risk. Thus, there is no guarantee that you will actually get a higher return by accepting more risk. In this matter diversification is useful.
Hence, you can minimize the risk by making sure the company's bond you own is not a high risk company with a high probability of paying back.
To learn more about risk of bonds here:
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The answer is that, "Mary was conducting an experiment".
Mary has done the experiment by raising the price of cookies every week, and when her experiment finished, she concluded a result from her experiment about the price of cookies which is more profitable. So in daily life we do many experiments to get conclusion from them sometimes it takes more time some times less.
Answer:
The cost of equity using the DCF method: 4.39%.
The cost of equity using the SML method: 15.01%.
Explanation:
a. The cost of equity using the DCF method:
We have: Current stock price = Next year dividend payment / ( Cost of equity - Growth rate) <=> Cost of equity = Next year dividend payment/Current stock price + Growth rate = 0.3 x 1.04/80 + 4% = 4.39%.
b. The cost of equity using the SML method:
Cost of equity = Risk free rate + beta x ( Market return - risk free rate); in which Risk free rate is rate on T-bill.
=> Cost of equity = 6.3% + 1.3 x ( 13% -6.3%) = 15.01%.
Answer:
$1.85
Explanation:
Fyaway travels reported a net income of $90,000 for the year 2021
During 2021 they declared and paid a cash dividend of $2,125
They also paid $10,000 as cash dividend in common stock
Flyway has 40,000 shares outstanding
Therefore the 2021 basic earning per share can be calculated as follows
$90,000-2,125
= $87,875
40,000 shares+(10,000 shares×9/12)
40,000 shares +(10,000×0.75)
40,000+7500
= 47,500
87,875/47,500
= $1.85
Hence the basic earning per share for 2021 is $1.85
