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Colt1911 [192]
2 years ago
7

Country Z is both a producer and an importer of green tea. If country Z imposes a tariff on imports of green tea, which of the f

ollowing will occur in the domestic market of green tea?
Advanced Placement (AP)
1 answer:
suter [353]2 years ago
8 0
Consumer surplus will increase.
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Stock Y has a beta of 1.0 and an expected return of 12.4 percent. Stock Z has a beta of .6 and an expected return of 8.2 percent
Harlamova29_29 [7]

Answer: 1.9%

Explanation:

First derive the Market return as this is needed in the Capital Asset Pricing Model by using the same model:

Required return = Risk free rate + Beta * ( market return - Risk free rate)

Using stock Y:

12.4% = Risk free rate + 1 * (market return - Risk free rate)

12.4% = Rf + market return - Rf

Market return = 12.4%

Use this to calculate the Risk free rate:

Stock Z:

8.2% = Rf + 0.6 * (12.4% - Rf)

8.2% = Rf + 7.44% - 0.6Rf

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0.4Rf = 0.76%

Rf = 0.76% / 0.4

= 1.9%

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3 years ago
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