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bulgar [2K]
3 years ago
7

A stock has an expected return of 11.85 percent, its beta is 1.24, and the expected return on the market is 10.2 percent. What m

ust the risk-free rate be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Business
1 answer:
prisoha [69]3 years ago
3 0

Answer:

The risk free rate is 3.325%

Explanation:

The required rate of return or cost of equity of a stock can be calculated using the CAPM. The CAPM estimates the required rate of return of a stock based on three factors- risk free rate, stock's beta and the market risk premium. The equation of required rate of return under CAPM is,

r = rRF + Beta * (rM - rRF)

Where,

  • rRF is the risk free rate
  • rM is the return on market
  • (rM - rRF) gives us the risk premium of market

We already have the values for r, Beta and rM. Plugging in these values in the formula, we calculate the rRF to be,

Let rRF be x.

0.1185 = x + 1.24 * (0.102 - x)

0.1185 = x + 0.12648 - 1.24x

1.24x - x  =  0.12648 - 0.1185

0.24x = 0.00798

x = 0.00798/0.24

x = 0.03325 or 3.325%

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Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manuf
Firdavs [7]

Answer:

The machine should be leased because it is cheaper when compared to buying the machine.

Explanation:

To determine which option kiddy should choose , we are to calculate the net present value of buying the machine and the present value of payments thay kiddy would make if they lease the equipment.

Net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator:

Cash flow in year 0 = $-161,000

Cash flow each year from year 1 to 11 = $-6,000

Cash flow in year 12 = $-6,000 + $11,000 = $5,000

I = 11%

NPV = $-196,809.89

Present value of lease payment

Cash flow each year from year 1 to 11 = $-26,000

I = 11%

PV = $-161,369.40

The machine should be leased because it is cheaper when compared to buying the machine.

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

Present value can be calculated using the same steps as above

I hope my answer helps you

8 0
3 years ago
Which of the following features of information systems can be used to help a business increase production and save time?
svlad2 [7]
Automated tasks      
 
 
 
 
 
 
 
 ......................................................................................................................                                                                                  
4 0
3 years ago
Jack is yelling at Samantha because she was late last week. Unfortunately, the whole office can hear. Now Samantha is not only u
lukranit [14]

Answer:

In this case, Jack's "human/interpersonal skills" failed. The skills that Jack is failing to use are important for "managers."

Explanation:

From the statement above, we can assume that Jack's position is superior to that of Samantha. He is, probably, the manager. However, he yelled at Samantha last week because she was late. In this case, Jack failed in his "human skills." This is also known as<em> "interpersonal skills,"</em> which is <u>a set of skills related to interacting effectively with other people.</u>

A manager with good interpersonal skills knows how to listen to his subordinates. In fact, he should be an <em>active listener,</em> which means he should be observant upon listening to other people's explanation. He should also provide advice or solve problems without yelling.

Thus, this explain the answers.

6 0
3 years ago
The Wet Corp. has an investment project that will reduce expenses by $25,000 per year for 3 years. The project's cost is $20,000
Jlenok [28]

Answer:

c. $20,416.50

Explanation:

Cost of assets = 20,000

Depreciation year 1 = 33% * 20,000 = $6,666

Annual cost saving = 25,000

Tax rate = 25%

Operating cash flow Year 1 = Cost saving*(1 - tax) + Tax*Depreciation

Operating cash flow Year 1 = 25,000*(1-0.25) + 0.25*6,666

Operating cash flow Year 1 = 25,000*0.75 + 0.25*6,666

Operating cash flow Year 1 = 18750 + 1666.5

Operating cash flow Year 1 = $20,416.5

So, the cash-flow from the project in year 1 is $20,416.50

8 0
2 years ago
When one commercial bank borrows from another commercial bank, it pays the __________ rate.
Len [333]

When one commercial bank borrows from another commercial bank, it pays the discount rate.

The one place where a bank can get reserves is by borrowing from a commercial bank. As whenever a person or a business firm or an organization borrows, they should pay interest and a bank that borrows from a commercial firm must pay interest to them too. The interest that the commercial bank charges to banks that borrow from them is called the discount rate.

The term discount rate is used when looking at a certain amount of money to be received in the future years and calculating the present value now. The word “discount” means the amount to be deducted. A discount rate is a typical rate that is deducted from a future quantity of money to provide its present value to money seekers.

The cash flows of investments or business ventures when at the time of discount, it is important to note whether the discount rates used can be varied depending on particular different elements. So, discount rates are paid to compensate the borrower bank to the lender bank during transactions.

Learn to know more about details of discount rates on

brainly.com/question/989075

#SPJ4

4 0
2 years ago
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