Answer: A) Buy a call
Explanation:
A Call Option is a derivative instrument where a person buys the option to be able to buy an asset at a set price. The call option therefore makes a profit if the price of the asset increases past the set (exercise ) price as the holder of the call option will be able to buy the asset for lower than it's market value.
If you believe that the price is likely to increase then you should buy a call option so that if it does increase, you can make a profit from the call option that would offset your loss from the short positions.
What is not a major purpose of orientation and socialization? Reducing employee turnover Reducing employee benefits Reducing stress and anxiety Reducing start-up costs
Answer:
B). Reducing employee benefits
Explanation:
Orientation and socialization programs primarily aim to make the new employees familiar to the organization, their role in the organization, the policies, rules, and to the other employees also. It helps the new employees to adapt easily to the new work environment, internalize the values, culture, and principles of the organization, build effective work relationships, etc.
As per the question, 'reducing the employee benefits' is not a major purpose of conducting orientation and socialization programs as it has no affiliation to it. These programs primarily aim to familiarize the new employees to the work culture which helps in reducing employee turnover(loss of talent due to an old employee leaving the organization and replaced by a new one), reducing the stress and grievances of the new employees, and reducing start-up costs as once the employees are familiar, they would yield maximum productivity in limited time. Thus, option B is the correct answer.
g Swifty Corporation, Inc. can produce 100 units of a component part with the following costs: Direct Materials $19000 Direct Labor 3500 Variable Overhead 17000 Fixed Overhead 11000 If Swifty Corporation can purchase the component part externally for $44000 and only $4000 of the fixed costs can be avoided, what is the correct make-or-buy decision?
Answer:
Swift Corporation should make the components
Explanation:
For a make or buy decision the relevant cash flows include
1. the differential variable of the two options
2. savings from avoidable fixed costs associated with internal production
Variable cost of producing $
(19,000 + 3500 + 17,000) 39,500
External purchase cost 44,000
Extra variable cost of external purchase 4,500
Savings in fixed cost (4,000)
Net extra ccost of external purchase 500
Decision:
Making the components internally would save the Swift Corporation
$500
Swift Corporation should make the components
Benton Company issues $10,000,000 of 10-year, 9% bonds on April 1, 2017 at 95 plus accrued interest. The bonds are dated January 1, 2017, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
Answer:
$9,725,000
Explanation:
The total cash received on the issue date is made of 95% of the bond's face value of $10,000,000 plus the three-month interest up to April 1 2017.
95% of face value=95%*$10,000,000=$9,500,000
three month interest accrued=$10,000,000*9%*3/12=$225,000
Total cash proceeds from bond issue=$9,500,000+$225,000
Total cash proceeds from bond issue=$9,725,000
What if the meaning of the cumulative EAC (cell M105) at the conclusion of Period 6?
Answer:
The meaning of the cumulative EAC ( cell M105 ) at the conclusion of period 6 is the total accumulation of the cost inquired within the period expressed as a percentage of the cost of completed tasks to the accumulating costs set aside for the entirety of the task.
Explanation:
The meaning of the cumulative EAC ( cell M105 ) at the conclusion of period 6 is the total accumulation of the cost inquired within the period expressed as a percentage of the cost of completed tasks to the accumulating costs set aside for the entirety of the task.
EAC ( estimate at completion ) is the estimation of the cost of the final cost of a project,and it is estimated based on the performance of the project at completion
Targaryen Corporation has a target capital structure of 75 percent common stock, 10 percent preferred stock, and 15 percent debt. Its cost of equity is 9 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 21 percent.a. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
a.
WACC = 0.07961 or 7.961% rounded off to 7.96%
b.
After tax cost of debt = 0.0474 or 4.74%
Explanation:
a.
The weighted average cost of capital or WACC is the cost of a firm's capital structure. To calculate the WACC, we multiply the weight of each component of the capital structure by the cost of that component. The components of capital structure can be one or all of the following namely debt, preferred stock and common stock.
The formula for WACC is,
WACC = wD * rD * (1-tax rate) + wP * rP + wE * rE
Where,
w represents the weight of each component r represents the cost of each component D, P and E represents debt, preferred stock and common stock respectively
WACC = 0.15 * 0.06 * (1 - 0.21) + 0.1 * 0.05 + 0.75 * 0.09
WACC = 0.07961 or 7.961% rounded off to 7.96%
b.
The after tax cost of debt is calculated by multiplying the cost of debt by (1 - tax rate) to adjust for the tax advantage provided by debt as interest payments on debt are tax deductible.
After tax cost of debt = 0.06 * (1 - 0.21)
After tax cost of debt = 0.0474 or 4.74%
A customer wishes to open a cash account and give trading authorization to a sibling. The required documentation would include which of the following?New account form.Joint account agreement.Customer agreement.Limited power of attorney.A) I and III. B) I and IV. C) II and III. D) II and IV.
Answer: B) I and IV
Explanation:
For the customer to open a new cash account they would need to fill out a new account form to initiate the process as is standard.
Also because they wish to give trading authorization to a sibling, this would need to be supported by a legal document stating that the sibling has been given such permission by the owner of the account. The relevant document would be a limited Power of Attorney.
__________either are owned and run by entrepreneurs or are divisions of larger retail corporations. They buy at less than regular wholesale prices and charge consumers less than retail.
Answer: off price retailers
Explanation:
Off price retailers are owned and run by entrepreneurs or are divisions of larger retail corporations and they buy at less than regular wholesale prices and charge consumers less than retail.
It should be noted that there are three main types of off price retailers and they are factory outlets, independents, and warehouse clubs.
1. A major controversy that is yet to be resolved about the Medicare Prescription Drug, Improvement and Modernization Act of 2003 is: A. The mechanism for enrollment of new Medicare managed care clients B. Northern versus southern states’ philosophies of “indigent care” C. What the program will ultimately cost the federal government D. None of the above
Answer:
C. What the program will ultimately cost the federal government
Explanation:
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was an attempt to make improvements or amendments to the Social Security Act. It radically changed the playing field for private plans participating in the Medicare program by substantially raising monthly payment rates in an effort to stabilize the market and reverse the decline in benefit generosity. It also provided for voluntary prescription drugs under the medicare program. However, the utilization and cost of the program skyrocketed as soon as the funding source was established. It has remained unknown what the program will ultimately cost the federal government, no wonder the current administration under Trump wants to turn it upside down.
What is the percentage loss on the funds she invested if the interest payment is included in the calculation
Answer with complete Question:
Barbara buys 130 shares of DEM at $33.00 a share and 190 shares of GOP at $37.00 a share. She buys on margin and the broker charges interest of 7 percent on the loan.
a. If the margin requirement is 42 percent, what is the maximum amount she can borrow? Round your answer to the nearest cent.
$ 6,565.60
(Which is equal to 58(100 - 42)% of $11,320.)
b. If she buys the stocks using the borrowed money and holds the securities for a year, how much interest must she pay? Round your answer to the nearest cent.
$ 459.59 ($6,565.60 x 7%)
If after a year she sells DEM for $22.00 a share and GOP for $30.00 a share, how much did she lose on her investment? Use a minus sign to enter the amount as a negative value. Round your answer to the nearest cent.
$ 2,760
What is the percentage loss on the funds she invested if the interest payment is included in the calculation? Use a minus sign to enter the amount as a negative value. Round your answer to two decimal places.
28.44 %
Explanation:
a. Data and Calculations:
DEM, 130 shares at $33.00 a share = $4,290
GOP, 190 shares at $37.00 a share = 7,030
Total value of investments = $11,320
Margin requirement = 42% of $11.320 = $4,754.40
Barbara can borrow $6,565.60 ($11,320 - $4,754.40)
1. Interest on borrowed fund (margin):
$6,565.60 x 7% = $459.59
2. Loss from Sale of:
DEM, 130 shares at $22.00 a share = $1,430 ($11 x 130)
GOP, 190 shares at $30.00 a share = $1,330 ($7 x 190)
Total loss from investments = $2,760
3. Percentage Loss, with interest included:
Interest on borrowed fund = $6,565.60 x 7% = $459.59
Total loss from investments = $2,760.00
Total loss = $3,219.59
Total value of investments = $11,320
Percentage Loss = $3,219.59/$11,320 * 100 = 28.44%
Find the convexity of a seven-year maturity, 6% coupon bond selling at a yield to maturity of 8%. The bond pays its coupons annually. (Do not round intermediate calculations. Round your answer to 4 decimal places.)
Answer:
convexity = 37.6306
Explanation:
given data:
maturity time = 7 years
yield to maturity (y) = 8% = 0.08
coupon bond = 6%
price= $89.59 ( gotten from the summation of pv(cf) from the table attached below )
t = time
convexity can be found using this formula
[tex]= \frac{1}{p(1+y)^2} * summation of (t +t^2) * pv(cf)[/tex]
= [tex]\frac{1}{89.59*(1.08)^2} * 3932.310[/tex] = 37.6306
A company issues 9%, 5-year bonds with a par value of $140,000 on January 1 at a price of $145,678, when the market rate of interest was 8%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:
Answer:
Semi annual interest payment = $6300
Explanation:
The interest payment of bond is calculated based on the coupon rate of the bond. The coupon rate is the interest rate carried by the bond. This rate can be different from the market interest rate and bond's yield to maturity. The interest payment is calculated by multiplying the coupon rate by the face value of the bond.
Annual interest payment = Coupon rate * Par value
For a semi annual bond, we calculate the interest payment in the same way as the annual bond. However, we just have to adjust the coupon rate for the semi annual period. We multiply the coupon rate by 6/12 as it is a semi annual payment.
Semi annual interest payment = Coupon rate * 6/12 * Par Value
Semi annual interest payment = 0.09 * 6/12 * 140000
Semi annual interest payment = $6300
A company issues 9%, 5-year bonds with a par value of $140,000 on January 1 at a price of $145,678, when the market rate of interest was 8%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:
Answer:
The amount of each semiannual interest payment is: $6,300
Explanation:
The semiannual interest payment of the bond is also known as the coupon payment of the bond and is calculated as follows :
Semiannual interest payment = ($140,000 × 9%) ÷ 2
= $6,300
Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. (FV of $1, PV of $1,FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Answer:
the option with the highest present value is option 3 with a present value of $63,925
Explanation:
option 1)
$64,000 now, so that is its present value
option 2)
$20,000 cash now + 6 annual payments of $8,000 (6%) interest rate = $20,000 x ($8,000 x 4.9173 (PV annuity factor, 6%, 6 periods) = $20,000 + $39,338 = $59,338
option 3)
6 annual payments of $13,000 (6%) interest rate = $13,000 x 4.9173 (PV annuity factor, 6%, 6 periods = $63,925
You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. Portfolio Value $ 1 million Portfolio's Beta 0.60 Current S&P500 Value 990
Anticipated S&P500 Value 915
1. What is the dollar value of your expected loss?
A. $142,900
B. $65,200
C. $85,700
D. $30,000
E. $64,200
2. How many S&P contracts should you buy or sell to hedge your position? (Not the e-mini but the standard S&P 500 contract) Allow fractions of contracts in your answer.
A. sell 3.477
B. buy 3.477
C. sell 4.236
D. buy 4.236
E. sell 11.235
Answer:
C. $85,700
number of contracts to hedge =2.4242
Explanation:
Here we are working with a standard contract so our multiplier will be $250
1. We first calculate expected drop in index
Expected Drop in Index = (1200-1400)/1400
-14.29%
To calculate expected loss in dollars,
we calculate expected Loss on the portfolio
= Beta*Expected Drop in Index
0.60*(-14.29%)
-8.57%
The dollar value of expected Loss is therefore = 1000000*(-8.57%)
=$-85700
2. Number of contracts to sell for hedging
= (Portfolio value * Beta)/(Current S&P 500 value * contract size)
= (1,000,000 * 0.60)/(990 * 250)
=600000/247500
=2.4242
Answer is not in the options
The task of crafting a strategy is principally concerned with A. how fast to try to accomplish the company's mission. B. determining how the organization can be more results-oriented and cost-efficient. C. keeping the organization free of debt and in strong financial shape. D. developing actions and business approaches that commit an organization to specific products, markets, competitive approaches, and ways of operating that are calculated to improve the organization's performance and business position. E. how fast to try to increase the company's profits and return on investment.
Answer: D. developing actions and business approaches that commit an organization to specific products, markets, competitive approaches, and ways of operating that are calculated to improve the organization's performance and business position.
Explanation:
The task of crafting a strategy is principally concerned with developing actions and business approaches that commit an organization to specific products, markets, competitive approaches, and ways of operating that are calculated to improve the organization's performance and business position.
Google's mission statement is “to organize the world's information and make it universally accessible and useful.” When the CEO, Sundar Pichai, reminds his team about the importance of the company's mission, he performs the management function of
Answer:
leading
Explanation:
Note that successful leadership involves the ability to motivate employees either by way of reminders and influencing their behavior to achieve the mission of the organization.
In a sense, what CEO, Sundar Pichai is doing constitutes managing people, that is, managing his employees by reminding them about the importance of the company's mission.
The existence of conflict has a positive side which can stimulate the following EXCEPT FOR:_________.
A) innovation.
B) complacency.
C) change.
D) creativity.
Answer:
B) complacency.
Explanation:
Conflict can be defined as a state of misunderstanding or disagreement between two or more parties, as a result of breakdown in decision making. It is usually caused by factors such as dissent of beliefs, opinions, needs, values, resources, attitudes, ideologies, goals etc. It is generally perceived that conflict usually has a negative consequence.
However, the existence of conflict has a positive side which can stimulate the following innovation, change, creativity but not complacency because it connotes a negative effect of unsatisfaction.
A risk management assessment is a systematic and methodical evaluation of the security posture of the enterprise.
a. True
b. False
Answer: false
Explanation:
Vulnerability assessment is defined as the systematic and methodical evaluation of security posture of the enterprise. It is used to expose the assets to the things that can harm them.
The steps that are involved in vulnerability assessment are the identification of asset, threat evaluation, the vulnerability appraisal, the risk assessment and finally the risk mitigation.
Therefore, the question is false
g A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000. The break-even point in units is: Group of answer choices
Answer:
14,000 units
Explanation:
Break even point in unit is calculated as ; Fixed costs / Contribution margin
Where contribution margin = Sales per unit - Variable cost per unit
Therefore, Break even point in unit is
= $98,000 / ($12 - $5)
= 14,000 units
Use the information in the table below:
Items Billions of $
Savings deposits 7000
Money market mutual funds 700
M2 13700
Checking deposits 2250
Small time deposits 750
1. What is M1?
2. Now, calculate the amount of currency in billions of dollars in the economy from the given information (assume no traveler's checks).
Answer:
1. $5,250 billion.
2. $3,000 billion.
Explanation:
1. M1 = M2 - Savings deposits - Money market mutual funds - Small time deposits
M1 = $13,700 billion - $7,000 billion - $700 billion - $750 billion
M1 = $5,250 billion
Thus, M1 is $5,250 billion.
2. Currency in circulation = M1 - Checking deposits
Currency in circulation = $5,250 billion - $2,250 billion
Currency in circulation = $3,000 billion
Thus, the amount of currency in circulation is $3,000 billion.
All of the following statements related to preparation of the statement of cash flows are true except
A. Purchase of an intangible asset is classified as an investing activity.
B. Repaying the principal of notes payable is classified as a financing activity.
C. Cash dividends paid to shareholders are classified as a financing activity
D. A company may report cash flows from operating activities using either the direct or indirect method.
E. Interest expense may be reported under operating or financing based on which one results in better cash flows.
Answer:
E. Interest expense may be reported under operating or financing based on which one results in better cash flows.
Explanation:
Interest expense is only reported under that cash flow from operating activities. No choice is available to report this under financing activity.
A man who is going to be living abroad for 2 years wants to buy an ordinary annuity that will provide monthly payments of $750 to his parents at the end of each month while he is gone. The interest rate he can obtain is 6% compounded monthly.
a) Over the 2 years, how much money will his parents receive from their son?
b) What is the amount of the annuity that he must buy now (present value) to generate these payments?
Answer:
a. $18,000
b. $16,922.18
Explanation:
a. The parents will receive $750 every month for 2 years while the man is away.
That means $750 for 24 months.
Total = 750 * 24
= $18,000
b. Payment is monthly so interest and period have to be converted accordingly.
2 years = 24 months
6% per year = 6/12 = 0.5% a month
Present Value of annuity formula;
PV = Pmt x (1 - (1 / (1 + i)^n)) / i
= 750 * ( 1 - (1 / 1.005^24))/0.005
= 750 * 22.5629
= $16,922.18
Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,050 monthly. The contract currently sells for $70,000. a. What is the monthly return on this investment vehicle
Answer:
a. 1.5% monthly
b. 18% per annum
c. 19.56%
Explanation:
Below are the missing sub-questions
"b. What is the Annual Percentage Rate?
c. What is the effective annual return?"
Solution
a. Monthly return = 1,050 / 70,000
Monthly return = 0.015
Monthly return = 1.5% monthly
b. APR = 12 month * 0.015
APR = 0.18
APR = 18% per annum
c. EAR = (1+0.015)^12 -1
EAR = 1.015^12 - 1
EAR = 1.195618 - 1
EAR = 0.195618
EAR = 19.56%
C&A sells T-shirts for $20 that cost $5 to produce. The annual holding cost percentage is 10% and the T-shirts turn 25 times a year. What holding cost does C&A incur for each T-shirt? $0.50 $0.02 $0.08 $0.04
Answer:
$0.02
Explanation:
C&A sells T-shirts for $20 that cost $5 to produce
The annual holfing cost percentage is 10%
The T-shirts turn 25 times a year
The first step is to calculate the holding cost
= $5 × 10/100
= $5 × 0.1
= 0.5
Therefore, since the T-shirts turn over 25 times a year then, the holding cost that C&A incurs for each T-shirts can be calculated as follows
= 0.5/25 times
= $0.02
Hence C&A incur a holding cost of $0.02 for each T-shirts
M Corp. has an employee benefit plan for compensated absences that gives each employee 15 paid vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days. At December 31, 2021, M's unadjusted balance of liability for compensated absences was $28,200. M estimated that there were 200 total vacation days available at December 31, 2021. M's employees earn an average of $141 per day. In its December 31, 2021, balance sheet, what amount of liability for compensated absences is M required to report
Answer: $28,200
Explanation;
There are 200 vacation days available as at December 31, 2021.
The liability compensated absences will be the amount that M Corp. owes employees should they take those 200 vacation days.
= 200 * 141 per day
= $28,200
Which of the following is not a way of reducig the costs of operatiions through adopting lean concepts?
A. Reducing or eliminating over-production waste.
B. Reducing or eliminating process reengineering waste.
C. Reducing or eliminating transportation waste.
D. Reducing or eliminating inventory waste.
Answer: . Reducing or eliminating process reengineering waste
Explanation:
The ways of reducing the cost of operations by using lean concepts are reducing or eliminating over-production waste, reducing or eliminating transportation waste and reducing or eliminating inventory waste.
Therefore, reducing or eliminating process reengineering waste isn't a way of reducing operational cost.
Currently, GreenCut Lawn mowers produces all of its riding lawn mower transmissions in-house. Annual costs for producing these 45,000 transmissions are detailed below: Instead of making its own transmissions, GreenCut is considering buying them from a supplier at a cost of $30 each. Based on incremental analysis, GreenCut should
Question:
Currently, GreenCut Lawnmowers produces all of the transmissions used in its riding lawnmowers in-house. Its annual costs for producing these 45,000 transmissions are detailed below:
Direct material 765,000
Direct labor 270,000
variable overhead 240,000
Fixed manufacturing overhead 150,000
Total manufacturing cost 1,425,000
Instead of making its own transmissions, GreenCut is considering buying them from a supplier at a price of $30 each. Based on incremental analysis, GreenCut should
Answer:
Green Cut should produce/make the transmission internally because doing so would it $15,000
Explanation:
For a make or buy decision the relevant cash flows include
1. the differential variable of the two options
2. savings from avoidable fixed costs associated with internal production
Incremental analysis $
External cost of purchase( $30× 45,000) 1,350,000
Variable cost of making
(765,000 + 270,000 + 250,000) (1,185,000 )
Extra variable cost of external purchase 165,000
Savings in Avoidable fixed cost (150,000)
Net extra cost of external purchase cost 15,000
Note that the fixed manufacturing cost are unavoidable cost i.e which means they would be incurred either way.
Decision
Green Cut should produce/make the transmission internally because doing so would it $15,000
Raggs, Ltd. a clothing firm, determines that in order to sell x suits, the price per suit must be pequals160 minus 0.75 x. It also determines that the total cost of producing x suits is given by Upper C (x )equals4000 plus 0.5 x squared. a) Find the total revenue, Upper R (x ). b) Find the total profit, Upper P (x ). c) How many suits must the company produce and sell in order to maximize profit? d) What is the maximum profit? e) What price per suit must be charged in order to maximize profit?
Answer:
a) R(x) = 160x - 0.5x^2
b) P(x) = 160x - x^2 - 4000
c) The company must produce and sell 107 suits in order to maximize profit.
d) The maximum profit is $1,671.
e) The price per suit that must be charged in order to maximize profit is $106.50.
Explanation:
Given;
Price = p = 160 - 0.5x .....................,............. (1)
Total cost = C(x) = 4000 + 0.5x^2 ............. (2)
We can solve as follows:
a) Find the total revenue
Total revenue = R(x) = p * x ........................(3)
Since from equation (1) p = 160 - 0.75x, we therefore substitute into equation (3) solve to have:
R(x) = (160 - 0.5x)x
R(x) = 160x - 0.5x^2 ................................... (4) <---------- Total revenue
b) Find the total profit, Upper P(x).
P(x) = R(x) - C(x) ........................................... (5)
Substituting equations (2) and (4) into equation (5) and solve, we have:
P(x) = 160x - 0.5x^2 - (4000 + 0.5x^2)
P(x) = 160x - 0.5x^2 - 4000 - 0.5x^2
P(x) = 160x - x^2 - 4000 ........................... (6) <------------------ Total profit
c) How many suits must the company produce and sell in order to maximize profit?
Profit is maximized where Marginal Revenue (MR) is equal to Marginal Cost (MC). That is where;
MR = MC ................................................ (7)
Where MR = price = p = 160 - 0.5x
MC is obtained buy differentiating equation (2) with respect to x as follows:
MC = C'(x) = x
Substituting for MR and MC in equation (7) and solve for x, we have:
160 - 0.5x = x
160 = x + 0.5X
160 = 1.5x
x = 160 / 1.5
x = 107
Therefore, the company must produce and sell 107 suits in order to maximize profit.
d) What is the maximum profit?
To obtain this, we substitute x = 107 into equation (6) and solve as follows:
P(x) = 160(107) - 107^2 - 4000
P(x) = (160 * 107) - 107^2 - 4000
P(x) = 17,120 - 11,449 - 4000
P(x) = 1,671
Therefore, the maximum profit is $1,671.
e) What price per suit must be charged in order to maximize profit?
To obtain this, we substitute x = 107 into equation (1) and solve as follows:
p = 160 - 0.5(107)
p = 160 - (0.5 * 107)
p = 160 - 53.50
p = 106.50
Therefore, price per suit that must be charged in order to maximize profit is $106.50.
Explain why income property cash flow is not the same as taxable income. Property cash flow usually differs from property taxable income because:
Answer:
Income property cash flow is not the same as taxable income for the following reasons:
- The amount of income that the owner must report for federal income tax purpose is different from the net cash flow created by the rental property
- While the interest part of a mortgage payment is tax deductible, a cash outflow is not tax deductible.
-In the calculation of taxable income from annual operations,a deduction for -depreciation is allowed, however, the owner does not pay for depreciation on an annual basis. This creates a reduction in taxable income as compared to the actual cash flow.
A stock has an expected return of 11.1 percent, its beta is .86, and the risk-free rate is 5.55 percent. What must the expected return on the market be?
Answer:
12%
Explanation:
The computation of the expected return on the market is shown below:
As we know that
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
11.1% = 5.55% + 0.86 × (Market rate of return - 5.55%)
So, the market rate of return is
= (11.1% - 5.55%) ÷ 0.86 + 5.55%
= 12%
Also , The Market rate of return - Risk-free rate of return) is also known as the market risk premium