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2 years ago

If the market risk premium increased to 6%, what would happen to the stock's required rate of return

Business

1 answer:

Inessa [10]2 years ago

7 0

Answer:

13%

Explanation:

As per the situation the solution of required rate of return first we need to find out the beta which is shown below:-

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

11% = 7% + Beta × 6%

Beta = 1

now If the market risk premium increased to 6% so,

The required rate of return = 7% + 1 × 6%

= 13%

Therefore for computing the required rate of return we simply applied the above formula.

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A study examining the performance of numerous assets from the United States and around the world confirms that a. U.S. equities

antoniya [11.8K]

Answer:

d. beta did a better job of explaining the returns than standard deviation

Explanation:

Beta measures the systemic risk associated with the particular investment, it do not compute the total risk associated, which is more logical.

Standard deviation computes the total risk associated.

Some risk is natural, like the risk of floods, natural calamities, earthquake, etc:

That risk shall not counted as for comparison as that is associated universally. Further, the risk associated with particular factors like bankruptcy of a company, or some legal case issue of a company are precisely described by beta coefficient.

Thus, beta provides better details about explaining the returns.

5 0

2 years ago

Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota, Dan Dority, the company’s geologi

boyakko [2]

Answer:

NPV is $28.5 million

Payback is 4.31 years

IRR is 13.25%

MIRR is 12.51%

Explanation:

The NPV,payback period,Internal rate of return and modified internal rate of return were computed in the attached spreadsheet.

Payback period=the year of the first positive cumulative cash flow+the year cumulative cash flow/the next year cash flow

the year of first positive cumulative flow is year 4

the cumulative cash flow for year 4 is $66 m

the next year cash flow is(year 5) is $210

payback=4.31

Download xlsx

4 0

2 years ago

Bus 322 when the organization makes a large-scale change, such as organizational restructuring, the change would be considered:

Charra [1.4K]

Renovating. Hope this helps you.....

7 0

2 years ago

You are analyzing a project with an initial cost of £130,000. The project is expected to return £20,000 the first year, £50,000

Mashutka [201]

Answer: Net Present Value = -$19,062

Explanation:

First, we'll compute the PV for the respective years

Present Value (Year-1)

= $0.6211 \times [1 + (0.055 - 0.06)]^{1}$

=0.6179945

Present Value (Year-2)

= $0.6211 \times [1 + (0.055 - 0.06)]^{2}$

=0.614904528

Present Value (Year-3)

= $0.6211 \times [1 + (0.055 - 0.06)]^{3}$

=0.611830005

Now, we'll compute the Cash Flow for the respective years

Cash Flow (Initial)

= $-130,000\times (\frac{1}{0.6211} )$

= -$209,306.07

Cash Flow (Year-1)

= $20,000\times (\frac{1}{0.61799} )$

=$32,362.75

Cash Flow (Year-2)

= $50,000\times (\frac{1}{0.61490} )$

=$81,313.44

Cash Flow (Year-3)

= $90,000\times (\frac{1}{0.611830} )$

=$147,099.68

Net Present Value:

= -$209,306.07 + ($32,362.75/1.141)+ ($81,313.44/1.142) +($147,099.68/1.143)

= -$209,306.07 +$28,388.38 + $62,568.05 + $99,288.10

= -$19,062

3 0

2 years ago

The money supply curve _____. This shift could be caused by the Federal Open Market Committee's (FOMC's) open-market purchase of

lidiya [134]

Answer:

Shifts right

Explanation:

A rightward shift in the money supply curve indicates its increase. When the FOMC purchases Treasury bills, they purchase these securities with money, thus injecting more money into the economy and increasing the money supply.

7 0

1 year ago