BUSINESS COLLEGE

Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume that there is an increase in the market risk premium, but the risk-free rate remains unchanged. Which of the following statements is correct? Answers: a-The required returns on all three stocks will increase by the amount of the increase in the market risk premium. b-The required return on Stock A will increase by less than the increase in the market risk premium, while the required return on Stock C will increase by more than the increase in the market risk premium. c-The required return of all stocks will remain unchanged since there was no change in their betas. d-The required return on the average stock will remain unchanged, but the returns of riskier stocks (such as Stock C) will decrease while the returns on safer stocks (such as Stock A) will increase. e-The required return on the average stock will remain unchanged, but the returns of riskier stocks (such as Stock C) will increase while the returns of safer stocks (such as Stock A) will decrease.

Answers

Answer 1
Answer:

Answer:

b-The required return on Stock A will increase by less than the increase in the market risk premium, while the required return on Stock C will increase by more than the increase in the market risk premium.

Explanation:

Beta reflects the risk associated, as the beta is low, the expected risk is also low, accordingly return expected is also keeping all things constant.

When Beta is less than 1 it means the returns will be lower than market, accordingly for Stock A the return will increase but slower than the market risk.

Whereas, the Beta is more than 1 of Stock B and accordingly the risk is more but return will grow even faster as the risk volatility is high than the market risk.


Related Questions

COLLEGE

The quantity of coffee sold fell sharply last month, while the price remained the same. Five people suggest various explanations: Lorenzo: Supply decreased, but demand was unit elastic.
Neha: Supply decreased, but it was perfectly inelastic.
Sam: Supply decreased, but demand was perfectly elastic.
Teresa: Demand decreased, but supply was perfectly elastic.
Andrew: Demand decreased, but supply decreased at the same time.

Who could possibly be right? Check all that apply.

__Lorenzo
__Neha
__Sam
__Teresa
__Andrew

Answers

Answer:

Sam

Tereza

Andrew could be right, but it depends on the magnitude changes,

Explanation:

Lorenzo is wrong because if supply decreased and the demand was unit elastic, then the equilibrium quantity will fall but the price will increase.  

Neha is also wrong because a perfect inelastic supply is a vertical line parallel to the y-axis, then if this supply decreases (shifts to the left) the equilibrium quantity will decrease but the price will increase.  

Sam is right because a perfectly elastic demand is a horizontal line parallel to the x-axis. and if supply decreases (or increases) the price will remain the same but the equilibrium quantity will decrease ( or if demand increases, it will increase).  

Teresa is also right because a perfect elastic supply looks the same as a perfect elastic demand, then if demand decreases (or increases) price will remain the same and the equilibrium quantity will decrease (or if demand increases, it will increase).  

Andrew could be right but depends on the magnitude change in demand and supply. If both (supply and demand) decrease in the same proportion, the equilibrium quantity will decrease, and the price could remain the same. But, it depends on the magnitude shifts.

COLLEGE

Onsider that world average levels of gdp per capita and satisfaction are 20,000 and 5,000, respectively. assume that both countries a and b are relatively poor, but have relatively high levels of satisfaction. using the point tool, plot and label points representing these two countries.

Answers

20,000 + 5,000 = 25,000 Two country label
COLLEGE

Tax-deferred retirement plans are a type of: A. exemption. B. itemized deduction. C. passive income. D. tax shelter.

Answers

The correct option is D. Tax shelter is a type of financial arrangement which main purpose is to minimize or avoid tax. It is a legal means of cutting short one's tax liability. Tax shelter can come in diverse forms. It may come in form of using one's money to invest in a particular area so that one will be able to claim tax reduction.  

Answer:

The answer is a tax shelter so D.

Explanation:

The answer is tax shelter because a tax shelter is an investment that provides immediate tax benefits and a reasonable expectation of a future financial return. A tax deferred retirement plan results in an immediate tax benefit because the money put into such an account or plan, is not taxed until it is withdrawn from the account. :-)

COLLEGE

Private savings is equal to: a. After-tax income less consumption b. Taxes less government spending on goods and services c. The total amount of savings accounts plus stock and bonds owned by households

Answers

Answer:

The correct answer is letter "A": After-tax income less consumption.

Explanation:

When disposable income or after-tax income is deducted from the households' consumption the result is considered the nation's private savings. The result can sometimes be negative if consumption in a country is higher than the income households perceive. However, in front of those situations, the government tends to intervene to balance the economy.

COLLEGE

At the end of the current year, using the aging of receivable method, management estimated that $28,500 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $800. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? Multiple Choice


Accounts Receivable 29,300

Allowance for Doubtful Accounts 29,300

Bad Debts Expense 27,700

Allowance for Doubtful Accounts 27,700

Accounts Receivable 28,500

Bad Debts Expense 800

Sales 29,300

Bad Debts Expense 29,300

Allowance for Doubtful Accounts 29,300

Bad Debts Expense 28,500

Allowance for Doubtful Accounts 28,500

Answers

Answer:

Adjusting entry the company made to record its estimated bad debts expense:

Bad Debts Expense 29,300

Allowance for Doubtful Accounts 29,300

Explanation:

The company uses the aging of receivable method to estimate uncollectible.

Estimated uncollectible would be $28,500

Before year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $800

Bad debts expense = $28,500 + $800 = $29,300

Adjusting entry the company made to record its estimated bad debts expense:

Bad Debts Expense 29,300

Allowance for Doubtful Accounts 29,300

COLLEGE

The most common first step in engaging in international business is

Answers

The most common first step in engaging in international business is "Indirect Exporting".


Indirect exporting means selling to a delegate, who in turn offers your items either straightforwardly to clients or to bringing in wholesalers. The most straightforward strategy for circuitous sending out is to pitch to a mediator in your own nation. When offering by this technique, you ordinarily are not in charge of gathering installment from the abroad client, nor for planning the transportation coordinations.  

COLLEGE

A pair of jeans cost $25 in the U.S. and 1600 dinar in Algeria. If the nominal exchange rate is 75 dinar per U.S. dollar, then the real exchange rate is

Answers

Based on the cost of jeans in the U.S. and Algeria, the real exchange rate is d. more than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria.

The real exchange rate is calculated as:

= Nominal exchange rate x Price in foreign country / Price in home country

= 75 x 25 / 1,600

= 1.17

The real exchange rate is 1. This means that you can buy the goods abroad and sell locally.

You can buy the jeans in the U.S. for $20 which should be:

= 20 x 75

= 1,500 dinar

And sell it for 1,600 which gives a profit.

In conclusion, the real exchange rate is more than 1.

Find out more at brainly.com/question/17134071.

Answer:

1.172 US pair of jeans/Algeria pair of jeans

Explanation:

The real exchange rate correlates the price of the same good in two different countries. In this case, the good is a pair of jeans.

The real exchange rate is given by:

The real exchange rate is 1.172 US pair of jeans/Algeria pair of jeans.

HIGH SCHOOL

You make cards and sell them for $2.50 each. it costs $1.15 to print each card. you also pay $50 for supplies. how many cards must you sell to meet the cost for making the cards (you break even)? round up to the next whole card.

Answers

If the cards are sold for $2.50 each and the variable cost of production is $1.15, then the gross contribution of each card is $2.50 - $1.15 = $1.35. Therefore, in order to break even, we need to sell enough cards to create a total contribution greater than the $50 fixed cost of starting the venture. Therefore dividing $50 by $1.35 and rounding up, we find a breakeven volume of 38 cards.

you would get 38 cards

COLLEGE

Heather hudson makes stuffed teddy bears. recent information for her business follows: selling price per bear $ 35.00 total fixed cost per month 1,500.00 variable cost per bear 24.00 if she sells 275 bears next month, determine the margin of safety in units, sales dollars, and as a percentage of sales.

Answers

First, you'll want to break down each item:
Sale price of a bear - $35
Fixed cost - $1,500
Variable cost of a bear - $24

If she sells 275 bears next month we will determine:
Margin of safety in units
Margin of safety in sales dollars
Margin of safety as a percentage of sales

Next, we will determine the dollar amount of sales and costs by multiplying the units sold by the price sold/cost of good
275 x $35 = $9,625
275 x $24 = $6,600
Fixed costs = $1,500

To find the margin of safety as a percentage of sales we will subtract the breakeven point from the current sales level and then divide by the current sales level
(Current sales level - breakeven point)/current sales level
$9,625 - $8,100 (fixed costs + cost of good)/ $9,625 =
15.84% is the margin of safety as a percentage

To find the margin of safety in unites we will subtract the breakeven point from the current sales level and then divide by the price per unit sold
$9,625 - $8,100 / 35 = 43.57 units is the margin of safety as a unit

To find the margin of safety in sales dollars we will subtract the breakeven sales from actual sales 
$9,625 - $8,100 = $1,525 is the margin of safety in sales dollars

You can also find the margin on sales as a percentage after finding the margin of safety in sales dollars by taking the margin of safety in sales dollars and dividing it by the actual sales and then multiplying it by 100.
$1,525/$9,625 = 0.1584 x 100 = 15.84%  
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