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Gre4nikov [31]
3 years ago
12

Suppose you observe the following situation: State of Economy Probability of State of Economy Rate of Return if State Occurs Sto

ck A Stock B Boom .21 .189 .097 Normal .74 .158 .076 Recession .05 - .246 .042 Assume the capital asset pricing model holds and Stock A's beta is greater than Stock B's beta by .84. What is the expected market risk premium?
A. 10.06 percent
B. 8.28 percent
C. 7.81 percent
D. 9.05 percent
E. 7.94 percent
Business
1 answer:
klio [65]3 years ago
6 0

Answer:

C. 7.81%

Explanation:

Stock A and Stock B expected Return shall be calculated using the following formula:

Stock A/B expected [email protected]*Return at [email protected]*Return at [email protected]*Return at Recession.

Stock A return=0.21*18.9%+0.74*15.8%+0.05*-24.6%

                       =14.43%

Stock B return=0.21*9.7%+0.74*7.6%+0.05*4.2%

                       =7.87%

Market risk premium=(Stock A Return- Stock B return)/0.84

Market risk premium=(14.43%-7.87%)/0.84=7.81%

So Based on the above explanation, the answer shall be C. 7.81%

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Answer and Explanation:

1.

The direct labor overhead rate using the direct labor hours is shown below:-

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b. The machine hour overhead rate using the machine hours is

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2.

The factory overhead costs using direct labor hour is

Particulars             Automobile       Valve        Wheels        Total

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Direct labor            

hours                        730                 480                515

Overhead rate         $128               $128              $128

Total                        $ 93,440        $61,440        $65,920     $220,800

For determining the total overhead we simply multiply the direct labor hours with overhead rate.

The factory overhead costs using machine hour is

Particulars             Automobile       Valve        Wheels        Total

                                bumpers           covers

Machine hours          1,970               1,270         1,360

Overhead rate            $48                  $48              $48

Total overhead        $94,560         $60,960    $65,280      $220,800

For determining the total overhead we simply multiply the machine hours with overhead rate.

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