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
Ira Lisetskai [31]
3 years ago
14

Stock in CDB Industries has a beta of 1.10. The market risk premium is 7 percent, and T-bills are currently yielding 4 percent.

The most recent dividend was $3.40 per share, and dividends are expected to grow at an annual rate of 5 percent indefinitely. The stock sells for $56 per share. Using the CAPM, what is your estimate of the company's cost of equity
Business
1 answer:
12345 [234]3 years ago
3 0

Answer:

Cost of equity = 11.7%

Explanation:

<em>The capital asset pricing model is a risk-based model. Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk. The magnitude by which a stock is affected by systematic risk is measured by beta.</em>

Under CAPM, Ke= Rf + β(Rm-Rf)  

Rf-risk-free rate,-4%,  β= Beta-1.10, (Rm-Rf) = 7% ,Ke = cost of equity

Using this model,  

Ke=4% + 1.10×7%

= 11.7 %

Cost of equity = 11.7%

You might be interested in
On StatSim, how does a firm get their market share to increase?
monitta

Answer:

I need some points please

6 0
3 years ago
Which of the following statements about the relationship between interest rates and bond prices is true? Multiple Choice There i
MaRussiya [10]

The statement about the relationship between interest rates and bond prices that is true is A. There is an inverse relationship between bond prices and interest rates, and the price of long-term bonds fluctuates more than the price of short-term bonds for a given change in interest rates (assuming that the coupon rate is the same for both).

It should be noted that when there's an increase in the interest rate, the price of bonds will be low. also, a decrease in the interest rate will lead to a higher bond price.

At a particular interest rate, the price of<em> long-term bonds</em> fluctuates more than the price of short-term bonds. It should be noted that the relationship between the bond price and<em> Interest rate</em> isn't direct but rather inversely related.

In conclusion, the correct option is A.

Read related link on:

brainly.com/question/24926932

4 0
2 years ago
Sandy Shores Corporation operates two stores: J and K. The following information relates to J: Sales revenue$1,300,000 Variable
natulia [17]

Answer:

Sandy Shores Corporation

J's Segment Contribution Margin is:

= $700,000.

Explanation:

a) Data and Calculations:

Sales revenue                                        $1,300,000

Variable operating expenses                    600,000

Contribution                                             $700,000

Fixed expenses:

Traceable to J and controllable by J        275,000

Traceable to J and controllable by others 80,000

Total fixed expenses                                355,000

Net operating income                            $345,000

b) The contribution margin is the difference between total sales revenue and the variable costs.  The idea of segment contribution margin is that it covers the fixed expenses, whether controllable by the segment or not.

5 0
3 years ago
Familiar routes to and from commonly visited areas create an individual's:
Artist 52 [7]
<span>Can create mental map of the chosen routes. By following certain routes on a daily basis, a person can mentally remember how to get to destination without having to do recalling that anyone would do when they haven't fully remember how to get there. There wouldn't be a need to use GPS or mapping app, if he or she can recall how to get there.</span>
5 0
3 years ago
Which factor increases the risk of IS project delays? A. loss of hardware B. shortage of technical staff C. poor password practi
murzikaleks [220]

Answer:

D.loss of equipment because without the right equipment needed it is gonna delay the IS project

Explanation:

5 0
3 years ago
Read 2 more answers
Other questions:
  • In relation to an approach to get into customers’ minds, _____ refers to the collection of associations and emotions unconscious
    6·1 answer
  • When a firm recognizes the critical importance of its employees by attempting to provide good conditions and opportunities, it s
    11·2 answers
  • What's the difference between earned income and unearned income
    15·1 answer
  • Brenda plans to reduce her spending by $50 a month. What would be the future value of this reduced spending over the next 10 yea
    10·1 answer
  • 1. Compound interest is:
    15·1 answer
  • Explain how banks can create money.
    5·1 answer
  • A lottery winner will receive $5 million at the end of each of the next fourteen years. What is the future value​ (FV) of her wi
    15·1 answer
  • _______ strategies involve developing and selling new products to people who are already purchasing the firm's existing product
    10·1 answer
  • The amount of reserves that a commercial bank is required to hold is equal to?
    10·1 answer
  • The formula for finding the net present value of a cash outflow now, a positive cash flow in 1 year, a positive cash flow in 2 y
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!