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DIA [1.3K]
3 years ago
6

Suppose the yield on short-term government securities (perceived to be risk-free) is about 4%. Suppose also that the expected re

turn required by the market for a portfolio with a beta of 1 is 10.0%. According to the capital asset pricing model:
a. What is the expected return on the market portfolio? (Round your answer to 1 decimal place.)
b. What would be the expected return on a zero-beta stock?
c-1. Using the SML, calculate the fair rate of return for a stock with a ? = –0.5.
c-2. Calculate the expected rate of return, using the expected price and dividend for next year. (Round your answer to 2 decimal places.)
c-3. Is the stock overpriced or underpriced?
Business
1 answer:
choli [55]3 years ago
8 0

Answer:

a) The Beta of market portfolio of is always 1, hence the expected return of market portfolio will be 10%

Expected return = Rf+Beta(Rm-Rf)

                              =4%+1*(10%-4%)= 10%

b) Expected return of zero beta stock will be risk free return = 4%

Expected return = Rf+Beta(Rm-Rf)

                              =4%+0*(10%-4%)= 4%

C-1) Fair rate of return = 1%

Working:-

The expected return by SML of stock with Beta= -0.5

                       = 4%+(-0.5)*(10%-4%) =1%

C-2) Expected rate of return, using the expected price and dividend for next year

Ans:- Expected rate of return = 16%

Working:-

Expected rate of return

=(Price of share next year +dividend)/current price-1

=(78+9-75)/75 -1

=16%

C-3) Stock is Under priced

Reason:- The expected return(16%) on stock is higher than the fair rate of return (1%) hence the stock must be under-priced.

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Answer:

Defense, military spendings.

Explanation:

5 0
3 years ago
Blue Spruce Corp. reported net income of $194,740 for 2022. Blue Spruce Corp. also reported depreciation expense of $36,900 and
Svetlanka [38]

Answer:

Blue Spruce Corp

Statement of Cash Flows for the year ended December 31, 2022

Operating activities section:

Net income                                          $194,740

add non-cash flow items:

    Depreciation expense                      36,900

    Loss on disposal of plant assets     54,030

Adjusted operating income             $285,670

Working capital changes:

Increase in accounts receivable         (15,650)

Increase in accounts payable              15,880

Increase in prepaid expenses             (4,250)

Net cash from operating activities $281,650

Explanation:

a) Data and Calculations:

Reported 2022 net income = $194,740

Depreciation expense = $36,900

Loss on disposal of plant assets = $54,030

Increase in accounts receivable = $15,650

Increase in accounts payable $15,880

Increase in prepaid expenses $4,250

b) The operating activities section is one section of the Statement of Cash Flows.  It shows the cash inflows and outflows from Spruce's normal business activities.  Other sections of Spruce's Statement of Cash Flows that show activities outside operating activities are the investment activities section and financing activities.

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3 years ago
Companies employing total quality management (TQM) programs know that Multiple Choice quality control should be incorporated onl
ladessa [460]

Answer:

<u>TQM requires constant improvements in all areas of the company as well as employee empowerment.</u>

Explanation:

As the name implies, total quality management requires constant improvements in all areas of the company as well as employee empowerment.

In other words, the company expects 99.99% accuracy in all areas of operations which should also include employee empowerment so that they can better meet quality standards.

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3 years ago
Equipment was purchased for $68,000 on January 1, 2013. Freight charges amounted to $2,800 and there was a cost of $8,000 for bu
Dahasolnce [82]

Answer:

a. $26,720

Explanation:

Before computing the accumulated depreciation, first we have to compute the original cost of the equipment, after that the depreciation expense. The calculation is shown below:

Original cos t = Equipment purchase cost + freight charges + installment charges

= $68,000 + $2,800 + $8,000

= $78,800

Now the depreciation expense under the straight-line method is shown below:

= (Original cost - residual value) ÷ estimated life in years

= ($78,800 - $12,000) ÷ 5 years

= $13,360

Now the accumulated depreciation is

= Depreciation expense × number of years

= $13,360 × 2 years

= $26,720

5 0
3 years ago
Prepare a 2018 balance sheet for Rogers Corp. based on the following information: Cash = $250,000; Patents and copyrights = $720
spayn [35]

Answer:

Common stock balance= $1,039,000

Explanation:

A balance sheet can be described as a financial statement that presents the assets, liabilities and shareholders' equity of a company.

Common stock refers to the security such shares that represents ownership in a company.

In order to determine the common stock account balance for Rogers Corp., its balance sheet is first prepared as follows:

Rogers Corp.

Balance Sheet

For the year 2018

<u>Particulars                                              $                         $             </u>

Intangible Assets:

Patents and copyrights                                                720,000

Tangible Assets:

Net fixed assets                                                         3,400,000

Current Assets:

Cash                                                   250,000

Accounts receivable                          129,000

Inventory                                        <u>    345,000  </u>

Total Current Assets                         724,000

Current Liabilities:

Accounts payable                            (530,000)

Notes payable                              <u>    (190,000)  </u>

Working Capital                                                                4,000

Long-term Liabilities:

Long-term debt                                                        <u>  (1,830,000) </u>

Net Total Assets                                                      <u>   2,294,000  </u>

Financed by:

Common stock (w.1)                                                   1,039,000

Accumulated retained earnings                            <u>    1,255,000   </u>

Owners' Equity                                                     <u>     2,294,000   </u>

Workings:

w.1: Common stock balance = Net total assets - Accumulated retained earnings = $2,294,000 - $1,255,000 = $1,039,000

4 0
3 years ago
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