Answer:
a. $60000
Explanation:
The forecasted sales of the firm = $250000
Breakeven sales of the firm = $190000
We have to find the margin of safety by using the above given information. Therefore, it can be determined by subtracting the breakeven sales from sales.
The margin of safety = sales – breakeven sales
The margin of safety = 250000 – 190000
The margin of safety = $60000
Thus, option A is correct.
"A customer owns 1,000 shares of XYZZ stock, purchased at $40 per share. The stock is now at $45, and the customer has become extremely bearish on the company. The client asks her representative for an "aggressive recommendation." The client should be told to:"
Answer:
Sell 1,000 shares of XXYZZ and buy 10 XYZZ put contracts
Explanation:
In the stock markets a bullish trend is when the price of the stock increases, while a bearish market is when the stock price decreases.
In this scenario the customer owns 1,000 shares of stock XYZZ stock that have been in a bullish trend rising from $40 to $45.
Usually a bullish trend is followed by a bearish trend.
If the customer is sure there will be a bear on the stock them he should sell or make a put trade.
On sale of the 1,000 shares the customer will make $5 per share, and enter a put option since the market is going bearish.
If we are replacing an old vehicle with a newer model, the cost of the old vehicle is:_______.
a. relevant to the decision
b. material to the decision
c. a sunk cost
d. an opportunity cost
Answer:
Option C
It is a sunk cost
Explanation:
The relevant cost of a decision is that that would future cash cash flow that arises as a direct consequence of a taking a decision.
In other words, before a sum is considered relevant to a decision , it must satisfy the following condition:
Future cost : a cots would only be incurred in the future if the decision is takenIt is must involve cashIt must arise as direct consequence of taking the decisionThe cost of the old machine is a past or sunk cost. It does not satisfy the three conditions listed above. Hence, it is no relevant because it is a sunk or past cost
______ can be used by a manufacturing firm to generate computerized documents sent to the supply chain members to signal that products and materials need to be pulled.
Answer:
The answer is Application Programming Interface (API)
Explanation:
API is a virtual portal that allows tokenized set of data to be transmitted among many parties. By tokenize data and transmit through APIs, parties can get the required data quicker and more secured. In the example, computerized documents can be transmitted among supply chain members to signal that products and materials need to be pulled.
The Equal Employment Opportunity Act gave the Equal Employment Opportunity Commission the authority to:
Answer:
issue guidelines for employer conduct in administering equal employment opportunity programs.
Explanation:
This act known as the The Equal Employment Opportunity Act was enacted to check discrimination and unfair treatment against minorities such as African Americans. This act has given the right to sue whenever any form of discrimination based on race, skin color, religious affiliation is found in the work place.
Therefore the correct answer is issue guidelines for employer conduct in administering equal employment opportunity programs.
If a two-stock portfolio is equally invested in stocks with betas of 1.4 and 0.7, then the portfolio beta is:_______.
A. 0.70.
B. 1.05.
C. 1.40.
D. 2.10.
Answer:
Beta= 1.05
Explanation:
Giving the following information:
A two-stock portfolio is equally invested in stocks with betas of 1.4 and 0.7.
To calculate the Beta of the portfolio, we need to use the following formula:
Beta= (proportion of investment A*beta A) + (proportion of investment B*beta B)
Beta= (0.5*1.4) + (0.5*0.7)
Beta= 1.05
Identify financial statement by type of information) Butler Tech, Inc., is expanding into India. The company must decide where to locate and how to finance the expansion. Identify the financial statement where these decision makers can find the following information about Butler Tech, Inc. In some cases, more than one statement will report the needed data.
a. Revenue
b. Common stock
c. Current liabilities
d. Long-term debt
e. Dividends
f. Ending cash balance
g. Adjustments to reconcile net income to net cash provided by operations
h. Cash spent to acquire the building
i. Income tax expense
j. Ending balance of retained earnings
k. Selling, general, and administrative expense
l. Total assets
m.Net income
n. Income tax payable
Answer:
a. Revenue - Income Statement
b. Common Stock - Balance Sheet
c. Current liabilities - Balance Sheet
d. Long-term Debt - Balance Sheet
e. Dividends - Statement of Shareholder Equity / Statement of Retained Earnings
f. Ending Cash Balance - Balance Sheet
g. Adjustment to reconcile net income to net cash provided by operations -Statement of Cash Flows
h. Cash spent to acquire the Buildings - Statement of Cash Flows
i. Income tax expense - Income Statement
j. Ending Balance of retained earnings - Statement of Shareholder Equity / Statement of Retained Earnings / Balance Sheet
k. Selling general and administrative expenses - Income Statement
l. Total Assets - Balance Sheet
m. Net Income - Income Statement / Statement of Shareholder Equity / Statement of Retained Earnings
n. Income tax payable - Balance Sheet
Savings Mart is a national retail chain. To entice the company to open a mega store in its jurisdiction, the city of Populationville donated a 20-acre tract of land to be used for construction. The land was originally purchased by the city for $250,000 three years ago. The appraisal value at the time of the donation was $300,000. For what amount should Savings Mart record the donated land
Answer:
$300,000
Explanation:
As per the Internal service revenue (IRS) and Generally accepted accounting principles (GAAP), when the entity who is profit making received any fixed asset as a donation than the same assets should be recorded at the fair value amount
Here the purchase price is $250,000 and the appraisal value i.e. fair value is $300,000
So the amount of donating the land should be recorded at $300,000
Identify the normal balance (debit or credit) for each of the following accounts.
a. Fees earned (revenues)
b. Office supplies
c. Owner withdrawals
d. Wages expense
e. Account receivable
f. Prepaid rent
g. Wages payable
h. Building
i. Owner Capital
The normal balance (debit or credit) for each of the accounts are:
Assets with debit balances:
b. Office supplies
e. Accounts receivable
f. Prepaid Rent
h. Building
Normal balanceBased on double entry principle of accounting every debit entry must have a corresponding credit entry and every credit entry must have a corresponding debit entry.
Assets with debit balances:
b. Office supplies
e. Accounts receivable
f. Prepaid Rent
h. Building
Expenses or contra-equity accounts with a debit balance:
c. Owner withdrawals and d. Wages expense
Liability, revenue, and equity accounts with credit balances normal:
a. Fees earned
g. Wages payable
i. Owner capital
Inconclusion the normal balance (debit or credit) for each of the accounts are: Assets with debit balances:
b. Office supplies
e. Accounts receivable
f. Prepaid Rent
h. Building
Learn more about normal balance here:https://brainly.com/question/13669524
In social science, researchers generally use a _______ confidence level, but in natural science, researchers often use a ______ confidence level.
Answer: 95% ; 90%
Explanation:
Confidence level is used in research and it is the probability that a parameter's value falls within a particular range of values.
In social science, researchers generally use a 95% confidence level, but in natural science, researchers often use a 90% confidence level.
For a 30% interest in partnership capital, profits, and losses, Carol contributes a machine with a basis of $40,000 and an FMV of $80,000. The partnership assumes a $70,000 recourse liability on the machine. At the time of the contribution, the partnership had recourse liabilities of $10,000. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Following the contribution, Carol has:_______.
a) a capital loss due to the contribution of $6,000 and a zero basis in the partnership interest.
b) a capital gain due to the contribution of $6,000 and a zero basis in the partnership interest.
c) a $34,000 basis in the partnership interest and no gain or loss.
d) a $43,000 basis in the partnership interest and no gain or loss.
Answer: b) a capital gain due to the contribution of $6,000 and a zero basis in the partnership interest.
Explanation:
Since we are informed that Carol has 30% interest in partnership capital, profits, and losses and also contributes a machine with a basis of $40,000 and an FMV of $80,000 and the partnership assumes a $70,000 recourse liability on the machine.
Therefore, her capital gain will be:
= 30% × $20,000
= 0.3 × $20,000
= $6,000
Therefore, there will be a capital gain due to the contribution of $6,000 and a zero basis in the partnership interest.
Which of the following is not an example of "fair use?
O teaching
O scholarship
O borrowing someone's illustrations for your children's book
O research
Answer:
C - borrowing someone's illustrations for your children's book
Explanation:
This is because you do not have permission to use the illustrations, and you are claiming the illustrations as your own when you put it in your book.
Plaese give brainliest or at least a thanks!
Answer:
C
Explanation:
O borrowing someone's illustrations for your children's book
Suppose a U.S. Treasury bond will pay $2,500 five years from now. If the prevailing interest rate on 5-year Treasury bonds is 4.25%, compounded semiannually, the value of the bond today is closest to:
Answer:
The value of the bond today is closest to $1648.85
Explanation:
The value of the bond today is closest to:
Present Value = FV / (1+i)^n *m
FV= 2500
I = 4.25 = 0.0425
N= 5
M= 2
The value of the bond today = 2500 / (1+0.0425) ^5*2
The value of the bond today = 2500 / 1.516214468
The value of the bond today = 1648.853256
The value of the bond today = $1648.85
The analytics layer of the Big Data stack is experiencing what type of development currently?
Answer:
significant development
Explanation:
the analytics layer of BiG data comprises the different applications, warehouses and pipelines that are applied in solving analytics use cases in organizations. Big data analytics are the various data patterns, information and data stories acquired from Big data through thecimplex process of studying and examining big data.
Big data analytics has seen a lot of development, from complex algorithms that perform deep mining to artificial intelligence. There have been vast improvements to analytics since the days of just hand statistics or excel sheets. Organizations have committed to large investments in data hardware and software such as analytics tools like Hadoop
Justin invests $10,000 per month for five years at 6.00% annual effective with the first payment made immediately. He used the accumulated value of the investment to purchase a house. If inflation is 3% per year, what is the current value of the house he would purchase assuming houses appreciate at the inflation rate?
Answer:
Justin
Present value of $714,677.31 at 3% per year for 5 years:
Discount factor of 3% for 5 years (discount factor table) = 0.863
Present value = $714,677.31 x 0.863
= $616,766.52
The house has a current value of $616,766.52.
Explanation:
a) Data and Calculations:
Investment = $10,000 per month
Period = 5 years or 60 months
Annual effective interest = 6% or 0.5% monthly
b) Future value of investment, using an online financial calculator:
FV (Future Value) $714,677.31
PV (Present Value) $529,841.89
N (Number of Periods) 60.000
I/Y (Interest Rate) 0.500%
PMT (Periodic Payment) $10,000.00
Starting Investment $10,000.00
Total Principal $610,000.00
Total Interest $104,677.31
c) First, we work out the future value of Justin's investment of $10,000 per month for five years at 6% annual effective. This gives us a future value of $714,677.31. Then, we can discount this future value to its present value with a discount factor of 0.863 if the inflation rate is 3% becauses houses appreciate at the inflation rate. Multiplying this future value by the discount factor gives the present value of the house as $616,766.52. This means that the house had appreciated in value by $97,910.79 at the inflation rate of 3% per year after five years.
Which of the following is true of external recruiting, compared to internal recruiting?
A. It encourages greater employee loyalty.
B. The process is cheaper.
C. The pool of talent is more limited.
D. It creates the need for multiple recruitments.
E. The process takes longer.
Answer:
The answer is E. The process takes longer
Explanation:
External recruitment is the process of announcing vacancies to the people outside ones organization while Internal recruitment is the process of announcing vacancies for the internal staffs only.
The process of external recruitment is usually longer and more expensive than internal recruitment. For example, payment to publish the vacancies in any national newspapers or payment for outsourcing company that specializes in recruitment.
Option A is wrong because external recruitment discourages employee loyalty.
Option B in incorrect because this is so for internal recruitment
Rick O'Shea, the only employee of Hunter Furniture Company, makes $30,000 per year and is paid once a month. For the month of January, his federal income taxes withheld are $180, state income taxes withheld are $37, social security is 6.2% on a maximum wages of $106,800, Medicare tax is 1.45%, State Unemployment Tax is 4.2%, and Federal Unemployment tax is .8%, both on a maximum wages of $7,000 per employee. What is the employer's payroll tax expense from Rick's paycheck
Answer: $316.25
Explanation:
The taxes paid by the employer are the Social Security taxes, Medicare taxes, Federal unemployment taxes (FUTA) and State unemployment taxes (SUTA).
Rick makes $3,000 a year but is paid monthly.
= 30,000/12
= $2,500
= (6.2% * 2,500) + (1.45% * 2,500) + ( 0.8% * 2,500) + ( 4.2% * 2,500)
= 155 + 36.25 + 20 + 105
= $316.25
You are planning to make monthly deposits of $70 into a retirement account that pays 12 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 24 years
Answer:
FV= $115,928.81
Explanation:
Giving the following information:
Monthly deposit= $70
Interest rate= 0.12/12= 0.01
n= 24*12= 288
To calculate the future value, we need to use the following formula:
FV= {A*[(1+i)^n-1]}/i
A= monthly deposit
FV= {70*[(1.01^288) - 1]} / 0.01
FV= $115,928.81
The following information was taken from the 2017 financial statements of Eiger Corporation, a maker of equipment for mountain and rock climbers:
Net income $ 100,000
Depreciation 30,000
Increase (decrease) in
Accounts receivable 110,000
Inventories (50,000 )
Prepaid expenses 15,000
Accounts payable (150,000 )
Salaries payable 15,000
Other current liabilities (70,000 )
Calculate Eiger’s cash flow from operating activities for 2017. (If the cash flow amount is negative, enter your answer with a minus sign.)
Answer:
Eiger’s cash flow from operating activities for 2017 is - $150,000.
Explanation:
Cash flow from Operating Activities
$
Net income 100,000
Adjustments for non-cash items
Depreciation 30,000
Adjustment fro changes in working capital
Increase in Accounts receivable - 110,000
Decrease in Inventories 50,000
Increase in Prepaid expenses - 15,000
Decrease in Accounts payable - 150,000
Increase in Salaries payable 15,000
Decrease in Other current liabilities - 70,000
Net Cash flow from Operating Activities -150,000
George, a wealthy investor, is uncertain whether he should invest in taxable or tax-exempt bonds. What tax and nontax factors should be considered?
George needs assistance understanding the different application of prepaid income under tax law and financial accounting
Answer:
The classification including its subject in question is outlined in the section given elsewhere here.
Explanation:
1...
Tax
Tax-Exempt Bonds: Municipal bonds gain financially by being able to benefit from income and sales taxes. This will give the company the added value with just paying taxes whenever the moment arises.Taxable Bonds: Nonetheless, taxable bonds allow the borrower to pay county and national taxation, and therefore are usually sold to ventures that do not help the common person.Rate of Return
Tax-Exempt Bonds: Municipal bonds, and perhaps tax-exempt treasuries, bring a lower cost of capital than that of the subject to tax paid great also because the investment company was also tax-exempt. Taxable Bonds: Taxable investors consider a rate of profitability for the market. Because this yield is greater than those of mutual funds, measurements of yields are necessary on a constant schedule.Net Taxable Income
Tax-Exempt Bonds: Throughout comparative analysis with either a municipal bond, developers could receive less profit with a taxable contract however if designers earn a lower profit margin. Taxable Bonds: In comparison to something like a municipal bond, we might also receive less money with such a subject to tax contract even however we are accruing a higher rate of return.Yield Comparison
Tax-Exempt Bonds: The proportion of tax deductible-equivalent production will always be lower than that of the subject to tax production. Taxable Bonds: The portion of taxable-equivalent production would always be significantly greater than that of the exempt yield. It's indeed attributable to the deduction of residential mortgage taxes.2...
The description prepaid benefit applies to any payment received in conjunction with and therefore is specifically due to, a debt that lasts past every end of the following term in which that payment is obtained. We implement the accounting method of the accounts under managerial statements.Incorporation throughout Gross Income gets to decide underneath the accrual ability to earn instead of just receiving the products. Payment method income taxpayers cause prosecutorial misunderstanding over all the natural environment of revenue recognition. The simplification of most courts assumes that revenue may accrue before or on before receipt but have never during the. Extra cash collected to proceed with productivity is therefore taxable instead of receiving.The Cutting Department has units in process at the end of that are 100% complete for direct materials and % complete for conversion costs. Calculate the equivalent units of production for direct materials and conversion costs.
Answer:
this question is incomplete, so I looked for another question that can be used as an example:
"The Cutting Department has 8,000 units in process at the end of September that are 100% complete for direct materials. The units are 70% complete for direct labor and manufacturing overhead, which is added uniformly. "
the equivalent units of production for direct materials = 8,000 units x 100% = 8,000 equivalent units
the equivalent units of production for conversion costs (direct labor and manufacturing overhead) = 8,000 units x 70% = 5,600 equivalent units
What is the future value of $500 in 17 years assuming an interest rate of 7 percent compounded semiannually
Answer:
The future value is $1,610.430167
Explanation:
The computation of the future value is shown below:
As we know that
Future value = Present value ×(1 + interest rate)^number of years
= $500 × (1 + 0.07 ÷ 2)^17× 2
= $500 × (1.035)^34
= $1,610.430167
Hence, the future value is 1610.430167
By applying the above formula we simply determined the future value
What is task performance leader ship?
The task-relationship model is defined by Forsyth as "a descriptive model of leadership which maintains that most leadership behaviors can be classified as performance maintenance or relationship maintenances." Task-oriented (or task-focused) leadership is a behavioral approach in which the leader focuses
Assume that the US produces mangoes in California and also imports them from India. India produces mangoes at a lower cost. A tariff imposed by the US government on mangoes from India will:
Answer:
Increase the price of mangoes in the US, and lower the quantity of mangoes sold in the US
Explanation:
Tarrifs are amounts that are levied on import of a product aimed at discouraging use of foreign goods and encourage purchase of locally produced goods.
Tariffs will force importers to offer the foreign product at higher price.
In this scenario when Indian mangoes are subjected to tarrif the prices will be high.
Consumers will patronise less of Indian mangoes and instead by more locally produced mangoes.
This will cause price of mango to rise because of relative scarcity of mangoes. It will cause reduction in the amount of mangoes in the United States because the will be a reduction of imported mangoes.
The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20 percent next year and then decreasing the growth rate to a constant 5 percent per year. The company just paid its annual dividend in the amount of $1 per share. What is the current value of a share if the required rate of return is 14 percent?
Answer:
Current value per share is $13.33
Explanation:
The two stage growth model of DDM can be used to calculate the price of the share today. The DDM values a stock based on the present value of the expected future dividends from the stock. The price of this stock under this model can be calculated as follows,
P0 = D0 * (1+g1) / (1+r) + [ (D0 * (1+g1) * (1+g2) / (r - g2)) / (1+r) ]
Where,
g1 is the initial growth rate which is 20% g2 is the constant growth rate which is 5% r is the required rate of return
P0 = 1 * (1+0.2) / (1+0.14) + [ (1 * (1+0.2) * (1+0.05) / (0.14 - 0.05)) / (1+0.14) ]
P0 = $13.33
Jackson Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2019, the first year of operations, Jackson produced 4,600 tons of plastic and sold 3,680 tons. In 2020, the production and sales results were exactly reversed. In each year, the selling price per ton was $2,400, variable manufacturing costs were 16% of the sales price of units produced, variable selling expenses were 8% of the selling price of units sold, fixed manufacturing costs were $3,312,000, and fixed administrative expenses were $470,000. (a) Prepare income statements for each year using variable costing.
Answer:
income statements for each year using variable costing
2019 2020
Sales $8,832,000 $11,040,000
Less Cost of Sales :
Opening Stock $0 $353,280
Add Manufacturing Cost $1,766,400 $1,413,120
Less Closing Stock ($353,280) $0
Cost of Sales ($1,413,120) ($1,766,400)
Contribution $7,418,880 $9,273,600
Less Expenses
Fixed manufacturing costs ($3,312,000) ($3,312,000)
Selling Expenses :
Variable ($706,560) ($883,200)
Fixed Administrative Expenses ($470,000) ($470,000)
Net Income / (Loss) $2,921,120 $4,608,400
Explanation:
Reconciliation of Units
2019 2020
Opening Stock 0 920
Add Production 4,600 3,680
Available for Sale 4,600 4,600
Less Sales (3,680) (4,600)
Closing Stock 920 0
Product Cost
Consider only variable manufacturing costs
Product Cost = $2,400 × 16%
= $384
The market capitalization rate for Admiral Motors Company is 8%. Its expected ROE is 10% and its expected EPS is $5. The firm's plowback ratio is 60%. a. Calculate the growth rate. (Input your answer as a nearest whole percent.) b. What will be its P/E ratio? (Do not round intermediate calculations.)
Answer:
(A) 6%
(B) 20
Explanation:
The market capitalization rate for Admiral motors is 8%
= 8/100
= 0.08
The expected ROE is 10%
= 10/100
= 0.1
The expected EPS is $5
The Plowback ratio is 60%
= 60/100
= 0.6
(A) The growth rate can be calculated as follows
= Plowback ratio × ROE
= 0.6 × 0.1
= 0.06×100
= 6%
Hence the growth rate is 6%
(B) The P/E ratio can be calculated as follows
= 1-0.6/0.08-0.06
= 0.4/0.02
= 20
Hence the P/E ratio is 20
Refer to Mc-King Chicken. Which of the following would not be an advantage of a franchise?
a. He gains fast and well-controlled distribution.
b. He has more capital available to expand.
c. Outlets are maintained and operated according to a set plan.
d. He has the opportunity to start a business with limited capital.
e. Success will cause another outlet to be opened nearby.
Answer: e. Success will cause another outlet to be opened nearby.
Explanation:
Another franchise opening does not depend on the success of Mc-King because this would imply that the funds from the successful outlet will be needed to open a new branch.
Franchises are opened with minimal capital from the side of the franchisor so the success of an outlet is not a factor in franchising. Even if he not making enough to start another outlet using his own funds, franchising will enable him to by using the funds of others.
Portions of the financial statements for Peach Computer are provided below. PEACH COMPUTER Income Statement For the year ended December 31, 2018 Net sales $1,825,000 Expenses: Cost of goods sold $1,060,000 Operating expenses 570,000 Depreciation expense 51,000 Income tax expense 41,000 Total expenses 1,722,000 Net income $ 103,000 PEACH COMPUTER Selected Balance Sheet Data December 31 2018 2017 Increase (I) or Decrease (D) Cash $103,000 $85,500 $17,500 (I) Accounts receivable 45,100 49,500 4,400 (D) Inventory 76,000 55,500 20,500 (I) Prepaid rent 3,100 5,200 2,100 (D) Accounts payable 46,000 37,500 8,500 (I) Income tax payable 5,100 10,500 5,400 (D) Required: Prepare the operating activities section of the statement of cash flows for Peach Computer using the indirect method
Answer:
PEACH COMPUTER
Cash flows from operating activities
For the year ended December 31, 2018
Cash flows from operating activities:
Net income $103,000
Adjustments to net income:
Depreciation expense $51,000Decrease in accounts receivable $4,400Decrease in prepaid rent $2,100Increase in accounts payable $8,500Increase in inventory ($20,500)Decrease in income tax payable ($5,400) $40,100Net cash flows provided by operating activities $143,100
The Day Company and the Knight Company are identical in every respect except that Day is not levered. Financial information for the two firms appears in the following table. All earnings streams are perpetuities, and neither firm pays taxes. Both firms distribute all earnings available to common stockholders immediately. Day Knight Projected operating $750,000 $ 750,000 income Year-end interest on debt $ 77,500 Market value of stock $3,600,000 $2,300,000 Market value of debt - $1,550,000
a-1. What will the annual cash flow be to an investor who purchases 10 percent of Knight's equity? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
a-2. What is the annual net cash flow to the investor if 10 percent of Day's equity is purchased instead? Assume that borrowing occurs so that the net initial investment in each company is equal. The interest rate on debt is 5 percent per year. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
X Answer is not complete.
a-1. Cash flow $ 67,250
a-2. Cash flow
b. Given the two investment strategies in (a), which will investors choose?
Answer:
a) $67,250
b) $68,500
c) Investment in Day Company results in a higher return, so I guess investors would probably go for it.
Explanation:
Knight Company's net income = $750,000 - $77,500 = $672,500
total investment in Knight Company = $2,300,000 / 10% = $230,000
earnings per 1$ invested = $672,500 / $2,300,000 = $0.292391
total cash flow = $230,000 x $0.292391304 = $67,250
Day Company's net income = $750,000
earnings per 1$ invested = $750,000 / $3,600,000 = $0.208333333
total investment in Day Company = $360,000, but I borrowed $130,000 to make this investment. The $130,000 will result in $6,500 annual interest payments
total cash flow = ($360,000 x $0.208333333) - $6,500 = $75,000 - $6,500 = $68,500
Consider a risky portfolio, A, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve?
A. E(r) = 0.15; Standard deviation = 0.20.
B. E(r) = 0.15; Standard deviation = 0.10.
C. E(r) = 0.10; Standard deviation = 0.10.
D. E(r) = 0.20; Standard deviation = 0.15.
E. E(r) = 0.10; Standard deviation = 0.20.
Answer: C. E(r) = 0.10; Standard deviation = 0.10.
Explanation:
An indifference curve is plotted by graphing the various combinations of portfolios such that the customer in question is indifferent between them as they regard the combinations as giving them equal utility.
For portfolios to be on the same indifference curve they would have to provide the same reward - risk ratio. The reward to risk ratio of the portfolio in question is;
=Expected return/standard deviation'
= 0.15/0.15
= 1.0
Any portfolio with this same reward - risk ratio will be on the same curve.
The Portfolio in Option C has the same reward - risk ratio (0.1 - 0.1) and so will lie on the same indifference curve.