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const2013 [10]
3 years ago
7

Consider the following two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.20. Stock B has an expected re

turn of 14% and a beta of 1.80. The expected market rate of return is 9% and the risk-free rate is 5%. Which security would be considered a good buy?
Business
1 answer:
mina [271]3 years ago
7 0

Answer: Stock B

Explanation:

Use CAPM to calculate the required returns of both stocks.

Stock A

Required return = Risk free rate + beta * ( Market return - risk free rate)

= 5% + 1.20 * (9% - 5%)

= 9.8%

Stock B

Required return = 5% + 1.8 * (9% - 5%)

= 12.2%

Both of them have Expected returns that are higher than their Required returns so both of them are good buys.

The better buy would be the one that has more expected value excess over required return.

Stock A excess = 10% - 9.8% = 0.2%

Stock B excess = 14% - 12.2% = 1.8%

<em>Stock B offers a higher excess and is the better buy. </em>

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The term "spreading the financial statements" refers to __________
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Answer:

The correct answer is letter "B": creating common-size financial statements.

Explanation:

In financial accounting, the phrase <em>"spreading the financial statements"</em> equals recording the common-size financial statement. By this, information is displayed in the Balance Sheet as a percentage of a common base figure. The common-size statement typically uses total sales revenue as the common base.

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Evans Ltd. publishes a monthly newsletter for retail marketing managers and requires its subscribers to pay $60 in advance for a
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Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

Total Sales = No. of Subscription Sold × Advance Price of Subscription

= 500 × $60 = $30,000

August Month Received Amount = (No. of Subscriber × Paid Amount) ÷ (1÷12 )

=(350×$60)÷1÷12

= $21,000 ÷ 12

= $1,750

Balance Sheet

Particular     Assets($)   Liabilities($)    Stockholder Equity($)   Income($)

Cash        36,000    

Unearned revenue      36,000  

Earned revenue       -1,800                                              -1,800

Total        36,000      34,200                                             -1,800

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3 0
3 years ago
What is the primary way in which insurance allows you to be covered for a loss, even if you haven't had it for very long?
Viefleur [7K]

C. You share the risk with others.

4 0
3 years ago
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aleksandrvk [35]

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to calculate Singapore's economic growth rate we can use the future value formula (we could also use the rule of 72 but it is not very exact):

future value = present value x (1 + r) ⁿ

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  • present value = 450
  • n = 17
  • r = ?

900 = 450 (1 + r)¹⁷

(1 + r)¹⁷ = 900 / 450 = 2

1 + r = ¹⁷√2 = 1.0416

r = 1.0416 - 1 = 0.0416 or 4.16%

6 0
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Answer:

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Explanation:

Potential GDP refers to the level of real GDP in long run.

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