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Aleonysh [2.5K]
3 years ago
10

Suppose you borrow at the risk-free rate an amount equal to your initial wealth and invest in a portfolio with an expected retur

n of 16% and a standard deviation of returns of 20%. The risk-free asset has an interest rate of 4%. Calculate the expected return on the resulting portfolio.
Business
1 answer:
Kazeer [188]3 years ago
5 0

Answer: 28%

Explanation:

First, we have to make an assumption that the initial wealth is 100, then the weight of the risk free asset will be:

= Amount invested in risk free / Initial wealth

= -100/100

= -1

The weight of the portfolio will be calculated as:

= 1 - weight of risk free asset

= 1-(-1)

= 1 + 1

= 2

Therefore, the expected return on the resulting portfolio will be:

= 2 × 16 + [(-1) × 4]

= 32 - 4

= 28

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Explanation:

The main purpose of a company is to increase the wealth of shareholders. In their capacity as stewards for the company, managers should be working therefore to achieve this goal.

When management neglects this goal and begins to seek an improvement in their welfare and wealth instead of the shareholder', this is an Agency problem.

If a Financial manager is increasing current profits even though doing so will lower the value of the company's equity, this can create an agency problem because the shareholders are suffering but the finance manager might get rewarded for increasing profits.

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3 years ago
During 2015, Bears Inc. recorded credit sales of $680,000. Before adjustments at year-end, Bears has accounts receivable of $300
Rufina [12.5K]

Answer:

Bad Debts Expense                      Debit                  $ 34,440

Allowance for Uncollectible accounts   Credit                          $ 34,440

Explanation:

Computation of amount of uncollectible balances to be recorded

Total accounts Receivable                                    $ 300,000

Accounts past due                                                  <u>$   51,000</u>

Accounts not yet past due                                     $ 249,000

Estimated uncollectible from not yet past due         10 %

Estimated uncollectible from past due                       24 %

Estimated uncollectible from not yet past due 10 % * $ 249,000  = $ 24,900

Estimated uncollectible from past due 24 % * $ 51,000            =     <u>$   12,240</u>

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Available balance in Allowance account                                           $   (2,700)

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8 0
3 years ago
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bagirrra123 [75]

Answer:

(A)Balance sheet

Bonds at September 30th

Bonds Payable      168,000,000

Discount on Bonds  (20,152,000)

Interest Payable       12,600,000

Net                          160,448,000

(B) Income Statment

Interest Expense 13,248,000

(C)Cash Flow Statment

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<em>interest payable: </em>168,000,000 x 10% x 9/12 = 12,600,000

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Answer:

Are; investment

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1. Income method

2. Expenditure method

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