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Lostsunrise [7]
2 years ago
11

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $50,000 or $150,000, with equal

probabilities of 0.5. The alternative riskless investment in T-bills pays 5%. a. If you require a risk premium of 10%, how much will you be willing to pay for the portfolio
Business
1 answer:
kvv77 [185]2 years ago
3 0

Answer:

A. $86,956.52

B. 15%

C.$83,333.33

Explanation:

a) Calculation for how much will you be willing to pay for the portfolio

First step is to calculate the required rate of return on the portfolio using this formula

The required rate of return on the portfolio= Risk Free Return+Risk Premium

Let plug in the formula

The required rate of return on the portfolio=5%+10%

The required rate of return on the portfolio=15%

Second step is to calculate the Expected value of the portfolio

Expected value of the portfolio= 0.5*50,000+0.5*150,000

Expected value of the portfolio =$100,000

Assuming x is the amount you will be willing to pay for the portfolio which means that:

x*(1+15%)=100,000 OR x= $86,956.52

Therefore You would be willing to pay $86,956.52 for the portfolio.

b) Calculation for What will the expected rate of return on the portfolio be

Expected return on the portfolio= (100,000-86,956.52)/86,956.52

Expected return on the portfolio=15%

Therefore the Expected return on the portfolio will be 15%

c) Calculation for What is the price you will be willing to pay now

In a situation where the risk premium is 15%, which means that the required rate of return will be

Required rate of return=5%+15%

Required rate of return=20%

Therefore the price you will be willing to pay= 100,000/(1+20%)

Price=$83,333.33

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Use the following information to prepare a multistep income statement and a balance sheet for Sherman Equipment Co. for 2016. (H
Allisa [31]

Answer:

Sherman Equipment Co.

a) Sherman Equipment Co.

Multistep Income Statement

For the year ended December 31, 2016

Sales Revenue                          $320,000

Cost of Goods Sold                     148,000

Gross profit                               $172,000

Operating expenses:

Salaries Expense                     $ 69,000

Operating Expenses                  62,000

Uncollectible Accounts Expense 8,100

Total operating expenses      $139,100

Operating income                   $32,900

Interest Revenue                        5,400

Net income                             $38,300

Balance Sheet

As of December 31, 2016

Assets

Current Assets:

Cash                                                             $48,100

Interest Receivable (short term)                     1,500

Accounts Receivable                    56,000

Allowance for Doubtful Accounts (7,800)  48,200

Notes Receivable (short term)                    24,000

Supplies                                                          1,200

Inventory                                                     98,300

Prepaid Rent                                               12,500

Total current assets                              $233,800

Long-term assets:

Land                                                           40,000

Total assets                                          $273,800

Liabilities and Equity:

Current liabilities:

Accounts Payable                                 $46,000

Salaries Payable                                      12,000

Total current liabilities                         $58,000

Equity:

Common Stock                                 $100,000

Ending Retained Earnings                   115,800

Total equity                                       $215,800

Total liabilities and equity               $273,800

Explanation:

a) Data and Calculations:

Cash 48,100

Interest Receivable (short term) 1,500

Accounts Receivable 56,000

Notes Receivable (short term) 24,000

Supplies 1,200

Inventory 98,300

Prepaid Rent 12,500

Land 40,000

Allowance for Doubtful Accounts 7,800

Accounts Payable 46,000

Salaries Payable 12,000

Common Stock 100,000

Beginning Retained Earnings 81,000

Dividends 3,500

Interest Revenue 5,400

Sales Revenue 320,000

Cost of Goods Sold 148,000

Salaries Expense $ 69,000

Operating Expenses $ 62,000

Uncollectible Accounts Expense 8,100

Cash Flow from Investing Activities 78,400

Beginning Retained Earnings 81,000

Net income                              38,300

Dividends                                 (3,500)

Ending Retained Earnings    115,800

7 0
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Shalnov [3]

<u>Solution: </u>

The following are the correct and incorrect options

<u>Correct option</u>: Households used to save and those savings are utilized for investment through the intermediaries like bank. Firms and governments take those funds for their investment acts.

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<u>Other options are not correct: </u>

<u>Incorrect option</u>: Savings means personal savings, which are not yet kept into a bank.

<u>Incorrect option</u>: such purchases are investments but not savings.

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Eddi Din [679]
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Gas is sold for 1.399 per liter in san diego, ca. your car needs 12.00 gallons. how much will your credit card be charged in dol
vovikov84 [41]

The answer is C: $63.54. The credit card will be charged $63.54 in Canadian dollars for 12.00 gallons of gas.

Solution:

Gas is sold per liter in Toronto, Canada for = $1.399

Car needs = 12.00 gallons

12 galloons = 45.4249 liters

Therefore, 45.4249 liters of gas = 45.4249 * 1. 399

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Thus, The credit card will be charged $63. 54 for 12.00 gallons of gas.

The official currency of Canada is the Canadian dollar (sign: $; code: CAD; French: dollar canadien). There is no standard disambiguating form; nevertheless, prominent style guides frequently recommend the abbreviation Can$ to distinguish it from other dollar-denominated currencies. It is abbreviated with the dollar sign $. There are 100 pennies in it.

Gas is sold for $1.399 per liter in Toronto, Canada. Your car needs 12.00 gallons. How much will

your credit card be charged in Canadian dollars?

A) $67.15

B) $16.79

C) $63.54

D) $4.44

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3 0
1 year ago
On January 2, 2019, Adelphi Company purchased a patent for $175,000 plus $5,000 in legal fees. On that date, the patent had a re
Vikentia [17]

Answer:

$22,500

Explanation:

Data given in the question

Purchase value of the patent = $175,000

Legal fees = $5,000

The Remaining life of the patent = 13 years

Expected using life of the patent = 8 years

So by considering the above information, the annual amortization expense for 2019 is

= (Purchase value of the patent + Legal fees incurred) ÷ (Expected using life of the patent)

= ($175,000 + $5,000) ÷ (8 years)

= $22,500

7 0
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