The CAPM- Capital Asset Pricing Model suggests that both stocks should have a required return higher than that of the market. The beta of a stock measures its volatility in relation to the overall market. The correct answer is: AMD should have a higher required return than NVDA.
A beta of 1 means the stock moves in line with the market, a beta higher than 1 means the stock is more volatile than the market, and a beta lower than 1 means the stock is less volatile than the market.
In this case, both AMD and NVDA have betas higher than 1, which means they are more volatile than the market. According to the CAPM, the required return of a stock is determined by its beta and the risk-free rate, plus a risk premium based on the market's expected return. If the market has a required return of, say, 8%, and the risk-free rate is 2%, then the required return of a stock with a beta of 1.5 would be:
Required return = 2% + 1.5 x (8% - 2%) = 2% + 1.5 x 6% = 11%
Therefore, since both AMD and NVDA have betas higher than 1, they should have a higher required return than the market. However, since AMD has a higher beta than NVDA, it should have a higher required return than NVDA. Therefore, the correct answer is: AMD should have a higher required return than NVDA.
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Suppose the after-tax cost of debt of the company is 6%. If the company has a capital structure of 35% debt and 65% equity, a cost of equity of 13.4%, and a marginal tax rate of 30%, what is its weighted average cost of capital?
The weighted average cost of capital (WACC) is the average cost of all of the capital sources a company uses to finance its operations, including debt and equity. To calculate the WACC, we need to take into account the after-tax cost of debt, the cost of equity, and the proportion of debt and equity in the company's capital structure.
Given the information provided, the after-tax cost of debt is 6%, and the company's capital structure is 35% debt and 65% equity. The cost of equity is 13.4%, and the marginal tax rate is 30%.
To calculate the WACC, we first need to calculate the weighted cost of debt and the weighted cost of equity. The weighted cost of debt is the proportion of debt in the capital structure multiplied by the after-tax cost of debt. In this case, it is 35% x 6% x (1-30%) = 2.52%.
The weighted cost of equity is the proportion of equity in the capital structure multiplied by the cost of equity. In this case, it is 65% x 13.4% = 8.71%.
The WACC is then calculated as the weighted average of the two costs, using the proportions of debt and equity in the capital structure. Therefore, the WACC for this company is 2.52% + 8.71% = 11.23%.
In conclusion, the weighted average cost of capital for this company is 11.23%.
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Which of the following methods are used by managers to manipulate earnings quality? (Select all that apply.) Check All That Apply Classifying cash flows associated with selling accounts receivable in the operating section of the statement of cash flows Adopting more liberal credit policies Using a discretionary accrual such as bad debt expense Using a "bill-and-hold" strategy
Managers may use several methods to manipulate earnings quality, including classifying cash flows associated with selling accounts receivable in the operating section of the statement of cash flows, adopting more liberal credit policies, using a discretionary accrual such as bad debt expense, and employing a "bill-and-hold" strategy. Option A, B, C, and D is correct.
They can classify cash flows associated with selling accounts receivable in the operating section of the statement of cash flows, which can artificially inflate cash flows from operating activities and make the company appear more profitable.
These methods can improve short-term financial performance, but they can also misrepresent the company's true financial health and lead to long-term consequences. Therefore, it is important for investors and stakeholders to be aware of these tactics and to carefully analyze a company's financial statements to assess its true performance.
Therefore, A, B, C, and D is correct.
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If fixed costs are $328,000, the unit selling price is $71, and the unit variable costs are $46, what are the old and new break-even sales (units) if the unit selling price increases by $8?
a.13,120 units and 4,620 units
b.7,130 units and 9,439 units
c.13,120 units and 9,939 units
d.4,620 units and 13,120 units
The old and new break-even sales (units) if the unit selling price increases by $8 is 13,120 units (old break-even sales) and 9,939 units (new break-even sales).
To find the old and new break-even sales (units) given the fixed costs, unit selling price, unit variable costs, and the increase in unit selling price, we will follow these steps:
1. Calculate the old contribution margin per unit (CMU) by subtracting the unit variable costs from the unit selling price: CMU = $71 - $46 = $25
2. Calculate the old break-even sales (units) by dividing fixed costs by the old CMU: Old break-even units = $328,000 / $25 = 13,120 units
3. Calculate the new unit selling price: New selling price = $71 + $8 = $79
4. Calculate the new contribution margin per unit: New CMU = $79 - $46 = $33
5. Calculate the new break-even sales (units) by dividing fixed costs by the new CMU: New break-even units = $328,000 / $33 = 9,939 units
The correct answer is Option c.
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Alan asks Alejandra He agrees payments to borrow him $3500. to pay the debt through annual. end of each at the year. The amount of the payments will be $500, $1000, $15.00, etc.. with a smaller final the last regular a year after payment payment Alejandra gains. a interest. rate of 10%. compounded Determine the amount of the 4 times per year. last payment.
The amount of the last payment of the loan when Alan asks Alejandra He agrees payments to borrow him $3500 would be $587.50.
How to calculate the amountInterest rate per period = Annual interest rate / Number of compounding periods per year
Interest rate per period = 10% / 4 = 0.1 / 4 = 0.025 or 2.5% (expressed as a decimal)
Loan balance after one year = Loan amount + Loan amount * Interest rate per period
Loan balance after one year = $3500 + $3500 * 0.025
Loan balance after one year = $3500 + $87.50
Loan balance after one year = $3587.50
Last payment = $3587.50 - ($500 + $1000 + $1500)
Last payment = $3587.50 - $3000
Last payment = $587.50
Therefore, the amount of the last payment would be $587.50.
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Which of the following is not a reason why a company would launch a new competitive actions? a. to obtain first mover advantages b. to improve market position c. to capitalize on growing demand d. to find new sources of raw materials
The answer point that is not a reason why a company would launch a new competitive actions is option D, "to find new sources of raw materials".
To gain a first-mover advantage, enhance market position, and leverage increasing demand, a company might initiate fresh competitive initiatives.
However, finding new sources of raw materials is not necessarily a reason to launch new competitive actions.
While sourcing raw materials is important for a company's operations, it is not typically a competitive strategy in itself.
Instead, a company may seek to improve its supply chain or negotiate better prices with existing suppliers.
In summary, launching new competitive actions involves strategic moves aimed at gaining an edge over rivals in the marketplace, and while sourcing raw materials is a necessary part of operations, it is not typically a reason to launch such actions.
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Joy Inc. has started manufacturing 15,000 units of a product. Direct materials cost incurred was $235,000, direct labor cost incurred was $202,000, and applied factory overhead was $78,000. What is the amount of total conversion cost?
the amount of total conversion cost for the manufacturing of 15,000 units of the product is $280,000.
The total conversion cost includes both direct labor cost and applied factory overhead.
To calculate the total conversion cost, you simply add the direct labor cost and the applied factory overhead. In this case:
Total conversion cost = Direct labor cost + Applied factory overhead
Total conversion cost = $202,000 + $78,000
Total conversion cost = $280,000
Therefore, the amount of total conversion cost for the manufacturing of 15,000 units of the product is $280,000.
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Which of the following events would definitely cause a decrease
in the producer surplus in a competitive market?
A decrease in the producer surplus in a competitive market would be caused by the following event:An increase in the cost of production.When the cost of production increases,
it directly affects the profitability of producers in the market. As a result, the producer surplus, which represents the difference between the market price and the cost of production, decreases. Producers would have to sell their goods at a higher cost, reducing the amount of surplus they can retain.Other events, such as a decrease in consumer demand or an increase in competition, can also potentially lead to a decrease in producer surplus. However, these events may not always cause a definite decrease as they can be influenced by various factors in the market. The increase in production costs, on the other hand, directly impacts the expenses incurred by producers, making it a more certain cause for a decrease in producer surplus.
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Use the following two equations: Qs = 972 + 103.5P Qo = 1722 - 141.5P A- Calculate the equilibrium price and the equilibrium quantity. Show all your work. B- Using the above two equations to find the values of Qd, Qs, the market situation (Shortage/Surplus/Equilibrium), and the Value of shortage or surplus if any, at the following prices: 3.044, 3.65, 3.88, and 3.95. C- If the consumer income increases by 40%, what will happen to the equilibrium price and quantity
A) Equilibrium is reached when Qd equals Qs. Setting Qd equal to Qs, we have: Qd = Qs ≈ 1308.52. B) By substituting the given prices into the equations for Qd and Qs, we can determine the values of Qd and Qs at each price point and compare them to determine the market situation (shortage, surplus, or equilibrium) and the value of any shortage or surplus.C) To determine the effect of a 40% increase in consumer income on the equilibrium price and quantity, we need to understand the impact of income on demand and how it affects the equilibrium position.
A) Equilibrium is reached when Qd equals Qs. Setting Qd equal to Qs, we have:
Qd = Qs
972 + 103.5P = 1722 - 141.5P
Adding 141.5P to both sides and simplifying:
245.0P = 750
Solving for P:
P = 750/245.0 ≈ 3.061
Substituting P back into either Qd or Qs equation, we find:
Q = Qd = Qs = 972 + 103.5P = 972 + 103.5(3.061) ≈ 1308.52
B) By substituting the given prices into the equations Qd and Qs, we can determine the values of Qd and Qs:
For P = 3.044:
Qd = 972 + 103.5(3.044) ≈ 1317.678
Qs = 1722 - 141.5(3.044) ≈ 1304.764
Qd > Qs, indicating a surplus in the market.
For P = 3.65:
Qd = 972 + 103.5(3.65) ≈ 1376.525
Qs = 1722 - 141.5(3.65) ≈ 1247.275
Qd > Qs, indicating a surplus in the market.
For P = 3.88:
Qd = 972 + 103.5(3.88) ≈ 1415.68
Qs = 1722 - 141.5(3.88) ≈ 1218.52
Qd > Qs, indicating a surplus in the market.
For P = 3.95:
Qd = 972 + 103.5(3.95) ≈ 1436.925
Qs = 1722 - 141.5(3.95) ≈ 1200.075
Qd > Qs, indicating a surplus in the market.
C) If consumer income increases by 40%, it will likely lead to an increase in demand. The higher income will shift the demand curve to the right, resulting in a new equilibrium price and quantity. However, without specific information on the income elasticity of demand, it is challenging to determine the exact impact on the equilibrium price and quantity.
Generally, an increase in consumer income will lead to a higher equilibrium price and quantity as consumers have more purchasing power, but the magnitude of the change depends on the income elasticity of demand for the product.
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There are 4 external market forces known as PEST. Explain what is meant by Political and Regulatory, Economic, Social and Demographic and Technological and how each forces can impact business.
PEST analysis is a framework for understanding the macro-environment in which a business operates. It stands for Political, Economic, Social, and Technological factors.
Political and Regulatory factors refer to the laws and regulations that govern businesses. These factors can have a significant impact on businesses, such as by affecting their costs, their ability to operate, and their access to markets.Economic factors refer to the overall state of the economy, such as the level of growth, inflation, and interest rates. These factors can affect businesses in a number of ways, such as by affecting their sales, their costs, and their ability to borrow money.Social and Demographic factors refer to the social and demographic trends that are taking place, such as the aging population, the growth of the middle class, and the increasing diversity of the population. These factors can affect businesses in a number of ways, such as by changing their target markets, their product offerings, and their marketing strategies.Technological factors refer to the development of new technologies, such as artificial intelligence, robotics, and 3D printing. These technologies can have a significant impact on businesses, such as by changing the way they operate, the way they produce their products, and the way they market their products.By understanding the PEST factors that are relevant to their business, businesses can better position themselves to succeed in the marketplace.
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You and two friends have identified a gap in the market in your hometown for work-from-home business clothing. This clothing is functional, comfortable and looks smart in online conferences and meetings. You decide to start a new business designing and manufacturing the clothing. In answering the questions below, consider the following: Maintain a balance between theory and application; All theory must be referenced from the textbook and other credible sources; Very limited use of direct quotes is permitted; you are required to paraphrase and explain concepts in your own words. Q.1.3 Identify and explain the legal form of ownership you believe would be best for your (10) business. Justify your choice.
The legal form of ownership that would best suit the new business would be a Limited Liability Company (LLC).
This is because it offers the liability protection that the business owners need, whereby their personal assets are protected in case of any legal or financial issues faced by the company. Additionally, LLCs offer flexibility in terms of taxation, as they can choose to be taxed as a sole proprietorship, partnership or a corporation.
This would be advantageous for the business as it would provide tax benefits while protecting the owners' personal assets, making it an ideal legal form of ownership for this venture.
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Zahra Co. makes and sells a single product. For each one unit of product. 2 meters of Material are needed. Budgeted sales for the next 3 months are as follows. udssted Sales January 29.200 units February 33,500 units March 28,600 unius Zahra Co. wants to maintain an ending finished goods inventory equal to 20% of the next month's budgeted sale units and an ending invettory of materials equal to 10% of the next month's production needs. The cost for each meter of material is $2.50. Required: Prepare the direct materials purchase budget for February, showing the total dollar amount needed to purchase materials.
The total dollar amount needed to purchase materials for February is $167,500.
To calculate the total dollar amount needed to purchase materials for February, we need to consider the production needs and the desired ending inventory of materials.
Given that the budgeted sales for February are 33,500 units, we need to produce enough units to meet this demand. Since 2 meters of material are needed for each unit, the total production needs for February would be 33,500 units × 2 meters = 67,000 meters of material.
To determine the materials to be purchased, we need to account for the desired ending inventory of materials, which is equal to 10% of the next month's production needs. Therefore, the desired ending inventory of materials for February would be 10% of 67,000 meters = 6,700 meters.
Considering both the production needs and the desired ending inventory, the total meters of material required for February would be 67,000 meters + 6,700 meters = 73,700 meters.
Given that the cost for each meter of material is $2.50, the total dollar amount needed to purchase materials for February would be 73,700 meters × $2.50 = $167,500. This represents the direct materials purchase budget for February.
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in the open-economy macroeconomic model the key determinant of net capital outflow is the real interest rate. when the real interest rate
A decrease in the real interest rate leads to an increase in net capital outflow due to an increase in the demand for loanable funds, a rise in the domestic interest rate, and an increase in purchases of foreign assets.
In the open-economy macroeconomic model, the real interest rate is the key determinant of net capital outflow. When the real interest rate decreases, net capital outflow increases.
The open-economy macroeconomic model represents the national economy's flow of goods and capital with the rest of the world. The model reflects that governments may influence the economy through monetary and fiscal policies, while also accounting for the exchange rate's impact on trade.
The role of the real interest rateThe real interest rate, defined as the interest rate adjusted for inflation, has a significant impact on the economy. In particular, it affects net capital outflow (NCO).
NCO refers to the difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreign residents.
The real interest rate is a key determinant of NCO since it affects the return on foreign and domestic assets.The impact of a decrease in the real interest rateWhen the real interest rate falls, it becomes less expensive for businesses and households to borrow money to finance their investments.
This increased borrowing leads to a greater demand for loanable funds, which drives up the domestic interest rate. A higher interest rate, in turn, makes domestic assets more attractive to foreign investors, causing a decrease in net capital outflow.
On the other hand, a decrease in the real interest rate means that foreign assets are less expensive for domestic residents. As a result, domestic residents increase their purchases of foreign assets, causing net capital outflow to rise.
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Broadcom Inc is expected to have EPS of $2 and ROE of 0.1696 in the coming year. If the firm is expected to continue to retain 70% of earnings for the foreseeable future, what's the intrinsic value of the stock if the required return is 11%?
The intrinsic value of the stock for Broadcom Inc is $160.92.
To calculate the intrinsic value of the stock, we can use the Gordon Growth Model, also known as the dividend discount model (DDM). The formula for the Gordon Growth Model is as follows:
Intrinsic Value = Dividends per Share / (Required Return - Dividend Growth Rate)
In this case, since the firm retains 70% of earnings, the retained earnings contribute to the growth rate of dividends.
First, we need to calculate the dividend per share (DPS):
DPS = Earnings per Share * Retention Ratio
= $2 * 0.7
= $1.40
Next, we can calculate the dividend growth rate (g):
g = ROE * Retention Ratio
= 0.1696 * 0.7
= 0.1187 or 11.87%
Finally, we can calculate the intrinsic value using the Gordon Growth Model:
Intrinsic Value = $1.40 / (-0.11 +0.1187)
= $1.40 / (0.0087)
≈ $160.92 (negative value)
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For least-squares to work well, we need: , the response variable to have a mean of zero. the relationship between x and y to be linear. O residuals to be Uniformly distributed. O the residuals to be correlated with the explanatory variable.
For least-squares to work well, we need the response variable to have a mean of zero and the relationship between x and y to be linear.
Least-squares is a statistical method used to estimate the relationship between a response variable (y) and one or more explanatory variables (x). In order for this method to work well, certain assumptions must be met. The first assumption is that the response variable has a mean of zero. This means that the average value of y should be close to zero, as a non-zero mean can result in biased estimates.
The second assumption is that the relationship between x and y is linear. This means that the relationship between the two variables can be adequately represented by a straight line. If the relationship is non-linear, then least-squares may not be the best method to use. In such cases, other regression methods such as polynomial regression may be more appropriate.
The third and fourth assumptions are related to the residuals, which are the differences between the observed values of y and the predicted values of y based on the regression model. The third assumption is that the residuals are uniformly distributed, meaning that they are equally likely to be positive or negative and are spread evenly across the range of x values.
The fourth assumption is that the residuals are not correlated with the explanatory variable. This means that the residuals should not be systematically related to the values of x. If the residuals are correlated with x, it can indicate a violation of the linear relationship assumption or the presence of omitted variables that are related to both x and y.
In summary, for least-squares to work well, we need the response variable to have a mean of zero, the relationship between x and y to be linear, the residuals to be uniformly distributed, and the residuals to be uncorrelated with the explanatory variable.
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Question 9 (1 point) Listen Mahesh borrowed $4,130 from Becky. He signed a contract agreeing to pay it back 9 months later with 5.35% simple interest. After 3 months, Becky sold the contract to Stan at a price that would earn Stan 5.00% simple interest per annum. Calculate the simple interest rate that Becky earned during the period that she held the contract. Express your answer as a percentage rate rounded to 2 decimal places but don't include the % sign. Your Answer: Ancier
To calculate the simple interest rate that Becky earned during the period she held the contract, we can use the formula for simple interest:
Simple Interest = Principal * Rate * Time. Mahesh borrowed $[tex]4,130[/tex] from Becky for a period of 9 months with an interest rate of [tex]5.35[/tex]%. However, after 3 months, Becky sold the contract to Stan.
To find the interest rate that Becky earned during the 3-month period, we can set up the equation:
Simple Interest (Becky) = Principal * Rate (Becky) * Time (Becky)
Simple Interest (Stan) = Principal * Rate (Stan) * Time (Stan)
Since Stan purchased the contract with the intention of earning 5.00% simple interest per annum, we can assume the time period for Stan is also 3 months. To calculate the interest rate earned by Becky, we can rearrange the formula:
Rate (Becky) = Simple Interest (Becky) / (Principal * Time (Becky))
Substituting the given values:
Rate (Becky) = Simple Interest (Becky) / ($[tex]4,130 * 3[/tex] months)
Once you have the value for Simple Interest (Becky), divide it by $4,130 * 3 months to find the interest rate earned by Becky.
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The basic form of the efficient markets hypothesis (suggested by Nobel Laureate Eugene Fama) is that all available information is factored into the current price and hence the current price provides no information of the direction of the future price. An implication of the efficient markets hypothesis is that rt is serially uncorrelated. Does rt violate this efficient markets hypothesis? Why?
The statement that "rt is serially uncorrelated" suggests that the future price changes, represented by rt, are not predictable and do not exhibit a pattern or correlation.
This aligns with the basic form of the efficient markets hypothesis (EMH) proposed by Eugene Fama, which states that all available information is already reflected in the current price. If rt is serially uncorrelated, it means that past price changes or other information do not provide any useful insight or signal about future price movements. This implies that the EMH holds, as the current price fully incorporates all available information, making it impossible to consistently predict future price changes based on historical data or other factors.
However, if rt violates the assumption of being serially uncorrelated, it suggests the presence of patterns or correlations in price changes. This would challenge the EMH, indicating that there is some information that is not fully reflected in the current price, allowing for potential predictability of future price movements.
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CVP
income statement show contribution margin instead of the gross
income
EI CVP Income Statement muestra el contribution margin en lugar del ingreso bruto. True False
False. The CVP (Cost-Volume-Profit) income statement does not show the contribution margin instead of the gross income.
The CVP income statement is a specialized format of the traditional income statement that focuses on the relationships between sales, costs, and profits. It includes information on revenues, variable costs, contribution margin, fixed costs, and net income.The contribution margin represents the difference between sales revenue and variable costs. It is calculated by subtracting variable costs from sales revenue. The CVP income statement includes the contribution margin as a key component because it helps in analyzing the profitability and cost structure of a business.However, the CVP income statement also includes the gross income or gross profit, which is calculated by subtracting the cost of goods sold (a type of variable cost) from sales revenue. The gross income provides information about the profitability of the core operations of a business before considering fixed costs.Therefore, the statement includes both the contribution margin and the gross income to provide a comprehensive view of the cost-volume-profit relationships and the overall financial performance of a business.
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workers' compensation coverage is elective in the state(s) of
Answer: New Jersey and Texas.
Explanation:
Under elective laws, an employer may choose to accept or reject the act, but if he rejects it, he loses certain defences if a worker is injured on the job. Coverage is only elective in two states: New Jersey and Texas.
In general, workers' compensation coverage is typically mandatory for employers in most states in the United States. There are a few states where it is elective for certain types of businesses or industries, but it is important to check with your state's laws and regulations to determine the specific requirements.
Overall, obtaining workers' compensation coverage is crucial for both employers and employees as it provides financial protection in the event of a workplace injury or illness. I hope this helps, and if you have any further questions, please let me know.
Workers' compensation coverage is elective in Texas and Oklahoma (for certain employers). In Texas, employers can choose whether or not to provide workers' compensation coverage for their employees. In Oklahoma, employers in specific industries can opt for an alternative to traditional workers' compensation coverage, called the Oklahoma Option.In all other states, workers' compensation coverage is mandatory for most employers. Elective coverage means that employers have the choice to provide or not provide workers' compensation benefits to their employees.
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You bought six platinum futures contracts when the futures price was $1,391.20 per troy ounce. The contract settlement price is $1,395 today. The contract size is 50 troy ounces. What was your total gain or loss marked to market?
The total gain marked to market for the six platinum futures contracts is $1,140.
What was your total gain or loss marked to market?To get total gain or loss, we need to find the difference between the purchase price and the settlement price and multiply it by the contract size and the number of contracts.
Given:
Purchase price per contract = $1,391.20 per troy ounce
Settlement price per contract = $1,395 per troy ounce
Contract size = 50 troy ounces
Number of contracts = 6
Gain or loss per contract = Settlement price - Purchase price
= $1,395 - $1,391.20
= $3.80 per troy ounce
Total gain or loss = Gain or loss per contract * Contract size * Number of contracts
= $3.80 * 50 * 6
= $1,140.
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Consumer loans differ from commercial loans in all
of the following ways except:
a. consumer loans are generally larger than
commercial loans.
b. consumer loans in some states are sul covered by consumer loans are generally more expensive to
administer on a unit basis than commercial loans.
C. individuals are more likely to default than
businesses. D. consumer loans are generally for longer terms than
commercial loans.
The correct answer is A. Consumer loans are generally smaller than commercial loans. Consumer loans are typically used for personal needs such as buying a car or a house, while commercial loans are used by businesses to finance operations, purchase equipment, or expand.
Consumer loans are generally shorter in duration than commercial loans, and they often have higher interest rates due to the higher risk associated with individual borrowers. However, they are not typically larger than commercial loans.
Consumer loans are financial products provided by banks, credit unions, or other financial institutions to individuals for personal use. These loans are intended to help consumers meet their immediate financial needs, such as purchasing a car, funding home improvements, paying for education, or covering unexpected expenses.
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Brandon is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that consists of four stocks. The investment allocation in the portfolio, along with the contribution of risk from each stock, is given in the following table:
Stock Allocation Beta Standard Deviation
Atteric Inc. (AI) 35% 0.900 23.00%
Arthur Trust Inc. (AT) 20% 1.500 27.00%
Lobster Supply Corp. (LSC) 15% 1.100 30.00%
Baque Co. (BC) 30% 0.400 34.00%
Brandon calculated the portfolio's beta as 0.900 and the portfolio's expected return as 8.95%.
Brandon thinks it will be a good idea to reallocate the funds in his client's portfolio. He recommends replacing Atteric Inc.'s shares with the same amount in additional shares of Baque Co. The risk-free rate is 4%, and the market risk premium is 5.50%.
According to Brandon's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change?
Brandon is an analyst at a wealth management firm equities and stock One of his clients holds a $5,000 portfolio that consists of four stocks.Jenna is holding a diverse portfolio of twenty stocks, each with a $5,000 investment.
For a total of $100,000. The beta of the portfolio is 1.12. Jenna wants to sell a stock with a 1.165 b (E) rating. Equities are the same as stocks, often known as company shares. As a result, when you buy stocks, you are also buying equity.
Employees who join a new company may also be given "equity." It's clear from this that you own some of the company's stock. An equity investment is when money is invested in a company by purchasing stock in it on the stock market. Typically, these shares are exchanged on a stock exchange. Since Allenby Spares is a link in the distribution chain, it can be held strictly accountable for the defective brake. In accordance with supply chain LIABILITY, Allen Spares may be held accountable for the defective brake.
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2. It is end of trading on May 31 The spot USDTRY exchange rate is £15.00 and USDTRY futures with October 31 settlement are priced at £17.30. The continuously compounded risk-free rate is observed as 1.40% per year for lending and 1.60% for borrowing in the US and 18% for lending and 27% for borrowing in Turkey over a six-month maturity. Determine whether arbitrage is possible and if it is, illustrate how.
If the synthetic forward price is lower than the futures price, there is no arbitrage opportunity.
To determine if arbitrage is possible, we need to compare the cost of constructing a synthetic forward contract using the spot exchange rate and risk-free rates with the actual futures price. If there is a difference, arbitrage opportunities may exist.
Calculate the cost of borrowing USD and lending TRY in the US:
USD borrowing rate: 1.60% per year (continuously compounded)
TRY lending rate: 18% per year (continuously compounded)
Cost of borrowing USD for six months =[tex]e^(USD borrowing rate * 0.5) - 1[/tex]
Cost of borrowing USD = [tex]e^(0.016 * 0.5) - 1 = 0.0080104[/tex]
Cost of lending TRY for six months = [tex]e^(TRY lending rate * 0.5) - 1[/tex]
Cost of lending TRY = [tex]e^(0.18 * 0.5) - 1 = 0.0905272[/tex]
Calculate the synthetic forward price using the spot exchange rate and risk-free rates:
Synthetic forward price =[tex]Spot exchange rate * (e^(TRY lending rate * 0.5) / e^(USD borrowing rate * 0.5))[/tex]
Synthetic forward price = [tex]15.00 * (e^(0.18 * 0.5) / e^(0.016 * 0.5)) = 15.78878[/tex]
Compare the synthetic forward price with the actual futures price:
If the synthetic forward price is greater than the futures price (£17.30), then there is an arbitrage opportunity. The trader can take the following steps to arbitrage:
a. Borrow USD: Borrow USD equivalent to the value of the contract (£17.30) at the USD borrowing rate.
b. Convert USD to TRY: Exchange the borrowed USD for TRY at the spot exchange rate of £15.00.
c. Lend TRY: Invest the TRY at the TRY lending rate for six months.
d. Enter into the futures contract: Sell a futures contract with a settlement date of October 31 to lock in the future exchange rate of £17.30.
e. Receive the synthetic forward price: At the maturity of the futures contract, receive the synthetic forward price of 15.78878 TRY per USD.
f. Repay the USD loan: Convert the received TRY back to USD at the spot exchange rate and use it to repay the USD loan.
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Suppose an investment has a 0.5% chance of a loss of $10 million
and a 99.5% chance of a loss of $1 million. What is the VaR for
this investment when the confidence level is 99%?
The VaR for this investment when the confidence level is 99% is $40,679,999.40. The VaR (Value at Risk) was calculated by determining the probability distribution of potential losses, calculating the standard deviation, and using the VaR formula. The result was a VaR of $40,679,999.40.
To calculate the VaR, we need to use the formula:
VaR = Z x SD x V
Where Z is the Z-score for the confidence level, SD is the standard deviation of the potential losses, and V is the value of the investment.
The Z-score for a 99% confidence level is 2.33. The standard deviation of the potential losses can be calculated using the formula:
SD = √(p1 x (l1 - E)² + p2 x (l2 - E)²)
Where p1 and p2 are the probabilities of the potential losses, l1 and l2 are the losses, and E is the expected loss.
Using the given probabilities and losses, we can calculate the standard deviation as follows:
SD = √(0.005 x (10,000,000 - 5,500,000)² + 0.995 x (1,000,000 - 5,500,000)²)
SD = $3,162,278.00
Using the formula for VaR, we can calculate the VaR as follows:
VaR = 2.33 x $3,162,278.00 x $5,500,000
VaR = $40,679,999.40
Therefore, the VaR for this investment when the confidence level is 99% is $40,679,999.40.
In summary, The VaR for this investment when the confidence level is 99% is $40,679,999.40. To calculate this, we first determined the probability distribution of the potential losses, which in this case is a 0.5% chance of a loss of $10 million and a 99.5% chance of a loss of $1 million.
We then used the formula for the standard deviation of the potential losses to calculate the standard deviation, which is $3,162,278.00. Finally, we used the formula for VaR to calculate the VaR, which is $40,679,999.40.
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What is an "acceptance" according to the Malaysian Contracts Act 1950 and explain TWO (2) main elements of a valid acceptance. Support your answer with relevant statutory provision(s)
According to the Malaysian Contracts Act 1950, "acceptance" refers to the unconditional agreement by a person to the terms of a proposal or offer, thereby creating a binding contract between the parties involved. Acceptance is crucial in forming a valid contract, and it must fulfill certain elements to be considered valid.
Two main elements of a valid acceptance under the Malaysian Contracts Act 1950 are:
1. Communication of Acceptance:
Section 4(2) of the Contracts Act states that acceptance must be communicated to the proposer. This means that the acceptance must be clearly expressed and brought to the knowledge of the offeror. It can be done through various means, such as verbal communication, written correspondence, or any other mode of communication specified in the offer.
2. Absolute and Unqualified Acceptance:
Section 7(b) of the Contracts Act stipulates that acceptance must be absolute and unqualified. This means that the acceptance must be in response to the exact terms of the offer, without any modifications or conditions. Any attempt to introduce new terms or vary the existing terms of the offer would be considered a counter-offer, and it requires the acceptance of the original offeror to become binding.
These elements ensure that the acceptance is clear, unambiguous, and mirrors the offer, leading to a meeting of minds between the parties involved, thus forming a valid contract.
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Assume a company's cost of equity exceeds its pretax cost of debt. Given this assumption and assuming all else is held constant, the company's WACC must increase if the A.) tax rate increases. B.) company's beta increases. C.) pretax cost of debt decreases. D.) debt-to-equity ratio increases. E.) market risk premium decreases.
If a company's cost of equity exceeds its pretax cost of debt, this means that the company is relying more on equity financing than debt financing (option b).
In this scenario, if all else is held constant, the WACC (weighted average cost of capital) must increase if the debt-to-equity ratio increases. This is because increasing the debt-to-equity ratio would mean the company is relying more on debt financing, which would lower the cost of capital (due to the tax benefits of debt) and therefore decrease the WACC.
However, if the cost of equity is already higher than the pretax cost of debt, increasing the debt-to-equity ratio would increase the cost of equity, thus increasing the overall WACC. The other options (tax rate increases, company's beta increases, pretax cost of debt decreases, market risk premium decreases) would not necessarily have a direct impact on the relationship between the cost of equity and pretax cost of debt, and therefore would not necessarily impact the WACC. The correct option is b.
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Adamson just paid a dividend of $1.5 per share; the dividend will grow at a constant rate of 6%. Its common stock now sells for $27 per share. New stocks are expected to be sold to net $24.60 per share. Estimate Adamson's cost of retained earnings and its cost of new common stock.
Group of answer choices
11.56% ; 12.10%
11.56% ; 12.46%
11.89% ; 12.46%
12.02% ; 12.88%
11.89% ; 12.10%
The estimated cost of retained earnings is 11.56% and the estimated cost of new common stock is 12.10%
To estimate Adamson's cost of retained earnings and cost of new common stock, we can use the dividend growth model (also known as the Gordon Growth Model) to calculate the cost of equity.
The cost of retained earnings (kre) can be calculated using the following formula:
kre = (Dividend / Stock Price) + Growth Rate
Given:
Dividend = $1.5 per share
Stock Price = $27 per share
Growth Rate = 6%
kre = ($1.5 / $27) + 6% = 5.56% + 6% = 11.56%
The cost of new common stock (knew) can be estimated using the following formula:
knew = (Net Proceeds / Stock Price) + Growth Rate
Given:
Net Proceeds = $24.60 per share
Stock Price = $27 per share
Growth Rate = 6%
knew = ($24.60 / $27) + 6% = 0.911 + 6% = 12.10%
The closest answer choice is:
11.56% ; 12.10%
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The price of Al-Saad company's shares is $30 per share, and it plans to pay cash dividends of $2 on the assumption that the capital markets are perfect. What how much) will the share price be after dividends? If the average Arab rate on profits is 25%, what will be the new stock price? (2 degrees)
The share price after dividends will be $28 per share. This is because the dividends reduce the value of the company by the amount of cash paid out. Therefore, the share price will drop by the same amount as the dividend per share.
If the average Arab rate on profits is 25%, the new stock price will be $35 per share. This is because the rate on profits reflects the expected return on the stock, which is equal to the dividend yield plus the capital gain rate. Therefore, use the following formula to find the new stock price:
Rate on profits = (Dividend per share / New stock price) + (Change in stock price / New stock price)
0.25 = (2 / New stock price) + ((New stock price - 28) / New stock price)
Solving for New stock price, we get:
New stock price = 35
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You have been asked to estimate the value of synergy in the merger of StraightCom, a movie
streaming firm, and Movie Sorcery, an entertainment company and have been provided with
the following information on the two companies:
StraightCom
Movie Sorcery
Revenues
$760.00
$260.00
After-tax Operating Income next year
$70.00
$40.00
Cost of capital
12.00%
9.00%
Return on capital
10.00%
12.00%
Net Debt
$100.00
$50.00
Number of shares (millions)
125
50
Both firms are in stable growth, growing 3% a year in perpetuity.
a. Estimate the value per share of StraightCom, prior to the merger.
b. Estimate the value per share of Movie Sorcery, prior to the merger.
c. Now assume that combining the two firms will be able to cut annual operating
expenses by $22 million (on an after-tax basis), though it will take three years for these
costs savings to show up. Estimate the value of synergy in this merger.
d. Assume that both companies were fairly priced before the acquisition and that
StraightCom pays a 25% premium over market price to buy Movie Sorcery. Estimate the
value per share for StraightCom after the acquisition.
Excel with formulas shown would be appreciated, guaranteed great rating!
a. The value of each share of StraightCom is $46.67.
b. The value of each share of Movie Socery is $88.9.
c. The cost saving present value evaluates to $16.23 million.
d. The estimated value per share for StraightCom after the acquisition is $68.89.
a. The value per share of StraightCom prior to the merger can be estimated using the discounted cash flow (DCF) method. The formula for the value per share is:
Value per share = (After-tax Operating Income / Cost of capital) / Number of shares
Using the given information:
After-tax Operating Income = $70 million
Cost of capital = 12%
Number of shares = 125 million
Value per share of StraightCom = ($70 million / 0.12) / 125 million = $46.67
b. Similarly, the value per share of Movie Sorcery prior to the merger can be estimated using the DCF method:
After-tax Operating Income = $40 million
Cost of capital = 9%
Number of shares = 50 million
Value per share of Movie Sorcery = ($40 million / 0.09) / 50 million = $88.89
c. To estimate the value of synergy in the merger, we need to calculate the present value of the cost savings generated by the merger. The formula for the present value of the cost savings is:
Present value of cost savings = Cost savings / (1 + Cost of capital)^t
Using the given information:
Cost savings = $22 million
Cost of capital = 12%
Time period = 3 years
Present value of cost savings = $22 million / (1 + 0.12)³ = $16.23 million
d. Since StraightCom pays a 25% premium over the market price to acquire Movie Sorcery, the value per share for StraightCom after the acquisition can be calculated as:
Value per share of StraightCom after acquisition = Value per share of StraightCom + (0.25 * Value per share of Movie Sorcery)
Value per share of StraightCom after acquisition = $46.67 + (0.25 * $88.89) = $68.89
Please note that the calculations provided above are simplified examples, and actual valuation methods may involve more complex factors and considerations.
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Bob operates a part-time television repair business in
his home spare bedroom why would Bob not be eligible for coverage
under a homeowners policy with the permitted incidental
occupancies
Bob may not be eligible for coverage under a homeowners policy with permitted incidental occupancies because operating a part-time television repair business from his home spare bedroom is considered a business activity.
Homeowners policies typically do not provide coverage for business activities conducted within the home, even if they are part-time or considered incidental. In addition, operating a business from the home may increase the risk of property damage or liability claims, which may not be covered under a homeowners policy. Bob may need to obtain a separate business insurance policy to ensure that his business operations are properly covered.
It is always best to speak with a licensed insurance agent to determine the appropriate coverage for any business activity conducted within the home.
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(a)Explain what is the "cost of capital" of a firm, and how this is related to the firm’s ability to maximize shareholder wealth.
(b)Explain how a firm’ cost of capital is applied in long-term investment decision making.
(c)Compare and contrast diversifiable risk with non-diversifiable risk. Which one of these risks is captured in the Capital Asset Pricing Model.
(d)Calculate the yield on the Treasury bill, given that the expected return of Asler stock is 11%, its beta is 1.5 and the return on the Straits Times Index (STI) is 8%.
(a) The "cost of capital" refers to the cost a association incurs so that raise funds for allure operations and assets. It represents the necessary rate of return that investors and lenders expect in consideration of providing capital to the firm.
What is the "cost of capital"The cost of capital is composed of two together debt and impartiality components, indicating the cost of borrowing services and the return expected by shareholders.
The firm's strength to maximize stockholder wealth is straightforwardly related to its cost of capital. The cost of capital serves as a yardstick for evaluating grant opportunities.
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