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oee [108]
3 years ago
15

You are analyzing a stock that has a beta of 1.20. The​ risk-free rate is 5.0 % and you estimate the market risk premium to be 6

.0 %. If you expect the stock to have a return of 11.0 % over the next​ year, should you buy​ it? Why or why​ not?
Business
1 answer:
Charra [1.4K]3 years ago
5 0

Answer:

No, you should not buy the it, Rate of 11% does not fully compensate your risk associated with the Beta 1.2. On this beta you should expect 12.2% return. Any other stock with lower risk might be acceptable for 11% return.

Explanation:

Capital asset pricing model measure the expected return on an asset or investment. it is used to make decision for addition of specific investment in a well diversified portfolio.

Formula for CAPM

Expected return = Risk free rate + beta ( market risk premium )

Expected return = 5% + 1.2 ( 6% )

Expected return = 5% + 7.2%

Expected return = 12.2%

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Gracious Ltd." is a US based company. The company plans to tap the Indian capital market through its forthcoming issue of equity
Mariana [72]

Answer:

1. Global depository receipts

2. External commercial borrowing

3. American depository receipts

4. Foreign currency convertible bonds

Explanation:

1. Global depository receipts. When a company buys shares of a foreign company, a certificate will be issued by the local depository bank, which allows for security supported by the shares purchased.

Here, Gracious ltd could raise funds by buying of shares in a company in India hence gives the company an avenue to hold shares in foreign country.

2. External commercial borrowing. These are loans granted to viable companies outside of India who are venturing into commercial businesses. Before theses loans are given, there is what is called eligibility status; which must be reviewed and thus confirm with the reserved bank of India before such loans are given.

3. American depository receipts. These are negotiable capital market instruments, issued by a bank in the United States, which shows the number of shares held by a foreign company, trading in the US capital market. A company could use this as a way of raising funds in the India capital market because it is well backed by the bank in the country where the company is.

4. Foreign currency convertible bonds. Here, a bond is issued in a different currency distinct from the issuer's local currency. What this means is that the money being sought for by the issuing company comes in a foreign currency denomination.

3 0
3 years ago
An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflati
Alisiya [41]

Answer:

option c) $ 12 billion

Explanation:

Data provided :

Required reduction in consumption = $ 36 billion

MPC = 0.75

Now,

Total income  = Required reduction in consumption / MPC

or

the Increase in tax = $ 36 billion / 0.75

or

= $ 48 billion

the government can raise the tax = $ 48 billion - $ 36 billion = $ 12 billion

Hence, the answer is option C

5 0
3 years ago
Hunter has always been great at math. He has an accounting degree and wants to work for the federal government in the Governance
rusak2 [61]
United States EmbassyUnited Postal ServiceMunicipal Taxation Department<span>Internal Revenue Service? 
 
which one

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4 0
3 years ago
Read 2 more answers
A given economy consists of markets A and B. All workers are equally skilled and choose jobs based only on wages. Due to an exog
blagie [28]

Answer:C. full efficiency in this market could be achieved even without reallocating workers between the two markets.

Explanation:

The marginal product of labour is the additional value that will be gained from production from employment of additional labour. The Entrepreneur will be willing to employ additional labour if the wages is lower than the marginal productivity and efficiency will only be achieved at that point.

Moving the labour from to market will not achieved efficiency in either market, for the wage rate is higher than the marginal product of labour in both market.

Increasing wage rate will reduce the efficiency and there is need to increase efficiency by making the marginal product of labour to be higher than labour rate.

4 0
3 years ago
Which of these statements best describes the basic norm of business ethics?Select one:
HACTEHA [7]

Answer:

B: In general, people are honest

Explanation:

This is because<em> business ethics</em> is the study of appropriate business policies and practices regarding potentially controversial subjects including corporate governance,<u> insider trading, bribery, discrimination</u>, corporate social responsibility, and fiduciary responsibilities.

5 0
3 years ago
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