The NPV of Project A is approximately -578.78.
Part 1: The NPV of project A can be calculated by discounting the cash flows using the risk-free interest rate of 8%. The initial cash flow of -9,300 and the cash flow in 1 year of 11,160 are considered. Using the NPV formula:
NPV = Initial Cash Flow / (1 + Risk-Free Interest Rate) + Cash Flow in 1 Year / (1 + Risk-Free Interest Rate) - Initial Investment
NPV of Project A = -9,300 / (1 + 0.08) + 11,160 / (1 + 0.08) - 9,300
NPV of Project A = (-9,300 / 1.08) + (11,160 / 1.08) - 9,300
NPV of Project A ≈ -8,611.11 + 10,333.33 - 9,300
NPV of Project A ≈ -578.78
Part 2: Similarly, for Project B, the NPV is calculated using the same formula and the provided cash flows (-4,000 and 4,200).
Part 3: For Project C, the NPV is calculated using the formula and the cash flows (-6,900 and 7,935).
Part 4: To determine which projects the company should accept, we compare the NPVs of each project. The projects with positive NPVs should be accepted.
By calculating the NPVs and comparing them, we can determine which projects the company should accept.
Note: The specific numerical calculations and comparison are not provided in the question.
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Q.1. Two firms produce homogeneous products. The inverse demand function is given by: p(x₁, x₂) = 80x₁-x2, where x₁ is the quantity chosen by firm 1 and x₂ the quantity chosen simultaneously by firm 2. the cost function of firm 2 is c2(x2) = 20x2 . the cost function of firm 1 is c1(x1) = 15 with probability of 0.5 . Identify the static bayesian nash equilibrium.
"
The static Bayesian Nash equilibrium in this scenario is when firm 1 chooses a quantity of x1 = 5 and firm 2 chooses a quantity of x2 = 10.
In a Bayesian game, players have private information that affects their decision-making. Firm 1 has a cost function that can take two possible values with equal probability (0.5). To find the static Bayesian Nash equilibrium, we need to consider each player's best response given their information and the beliefs of the other players.
Firm 2's cost function is known to both firms, so Firm 2 will choose the quantity that minimizes its cost, which is x2 = 10. Firm 1, knowing that firm 2 will choose x2 = 10, will choose the quantity that maximizes its expected profit. Firm 1's expected profit is calculated by taking the weighted average of its profits under each possible cost value (0.5 * (80x1 - 20) + 0.5 x (80x1 - 15)). To maximize its expected profit, firm 1 chooses x1 = 5.
Therefore, the static Bayesian Nash equilibrium is reached when firm 1 chooses x1 = 5 and firm 2 chooses x2 = 10. This equilibrium represents the best response for each firm given their private information and the expected actions of the other firm.
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Which of the following is true of an effective vision statement? A) It clearly describes an organization as it currently operates. B) It inspires the members of an organization. C) It is an estimation of the profits of an organization. D) It clarifies the short-term direction of a company. E) It is a statement strictly based on financial targets.
B) It inspires the members of an organization. An effective vision statement is a forward-looking statement that captures the aspirations and goals of the organization, inspiring and motivating its members to work towards a shared future.
An effective vision statement goes beyond describing the current state of an organization and instead focuses on its future aspirations. It serves as a powerful tool to inspire and engage the members of the organization by painting a compelling picture of what the organization aims to achieve. A well-crafted vision statement captures the core values, purpose, and desired impact of the organization, creating a sense of direction and guiding decision-making. It acts as a rallying point, motivating employees, stakeholders, and even customers to align their efforts towards a common goal. By setting a clear and inspiring vision, organizations can foster a shared sense of purpose, drive innovation, and create a positive organizational culture that propels them towards success.
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Explain whether the following assets are a real asset or a financial asset. Explain your reasoning using the definitions of real vs. financial assets.A certificate of deposit at your local bank. Explain,A two-bedroom house. Explain,$50,000 worth of bonds from an airline company. Explain,Ownership of a copyright to a hit song. Explain
Real Assets vs Financial Assets Real assets Real assets are tangible or physical assets such as real estate, property, precious metals, or commodities. These assets have an intrinsic value, which means they have worth in and of themselves and can be used in the production of goods or services.
Financial assets, on the other hand, are intangible or non-physical assets that derive their value from a contractual claim, such as stocks, bonds, or bank deposits. Financial Assets Financial assets are instruments that are tradable and are used for investing and financial purposes. Financial assets have no intrinsic value, but their value depends on the contractual claims and rights that they carry.
Certificate of deposit A certificate of deposit is a financial asset. It is an agreement between a bank and a depositor that the depositor will leave their money in the bank for a specific period of time. The depositor is guaranteed a fixed interest rate on the deposit. This asset is a financial asset because it is an agreement between two parties that carries a contractual claim. A two-bedroom house A two-bedroom house is a real asset. It is a physical asset that has intrinsic value and can be used for residential purposes or rented out. Real estate assets such as houses have an inherent value based on their location, size, and features.
They can be sold or rented out to generate income.$50,000 worth of bonds from an airline company$50,000 worth of bonds from an airline company is a financial asset. Bonds are financial instruments issued by companies or governments to raise capital. Bondholders are creditors who lend money to the issuer in return for interest payments and the return of the principal at maturity. Bonds carry a contractual claim that provides bondholders with a right to receive interest payments and a return of principal at maturity.
Ownership of a copyright to a hit song Ownership of a copyright to a hit song is a financial asset. A copyright is a legal right granted to an author or creator to protect their original work from being copied or used without permission. Copyrights are intangible assets that derive their value from a contractual claim.
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You buy a new piece of equipment for $16,230, and you receive a cash inflow of $2,500 per year for 12 years. What is the internal rate of return? 12. King's Department Store is contemplating the purchase of a new machine at a cost of $22,802. The machine will provide $3,500 per year in cash flow for nine years. King's has a cost of capital of 10 percent. Using the internal rate of return method, evaluate this project and indicate whether it should be undertaken.
Since the IRR (11.57%) is higher than the cost of capital (10%), the project should be undertaken, as it is expected to generate a return higher than the cost of capital and create value for the company.
To calculate the internal rate of return (IRR) for the equipment purchase, we need to consider the initial cost and the cash inflows over the 12-year period. The IRR is the discount rate that makes the net present value (NPV) of the cash flows equal to zero.
In this case, the initial cost is -$16,230, and the annual cash inflow is $2,500 for 12 years. Using a financial calculator or spreadsheet software, we can find that the IRR is approximately 5.81%.
For King's Department Store's new machine purchase, the initial cost is -$22,802, and the annual cash flow is $3,500 for nine years. Since King's cost of capital is 10%, we compare the IRR to the cost of capital to evaluate the project.
Calculating the IRR, we find that it is approximately 11.57%. Since the IRR (11.57%) is higher than the cost of capital (10%), the project should be undertaken, as it is expected to generate a return higher than the cost of capital and create value for the company.
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Given the following term structure of 4.22%,4.84%,5.76%, and 6.38% for the most on-the-run issues of Treasuries with maturity from I to 4 years (assuming those were issued at par), compute the zero-rate for a 3-year T-bond, assuming annual coupon payments?
The zero rate of interest for a 3-year T-bond is 5.16%.
Given the following term structure of 4.22%,4.84%,5.76%, and 6.38% for the most on-the-run issues of Treasuries with maturity from I to 4 years (assuming those were issued at par), the zero-rate for a 3-year T-bond can be calculated as follows:
The formula for calculating the zero rate of interest is as follows:
`r= [(FV/PV)^1/n]-1`
Where,FV = Future Value,
PV = Present Value,
and n = Number of years
To calculate the zero rate for a 3-year T-bond, we need to calculate the Present Value (PV) and Future Value (FV) of the bond as follows:
PV = The present value of a bond is the present worth of future cash flows generated by it.
This can be calculated using the formula
`PV = C/(1+r)^1 + C/(1+r)^2 + ... + C/(1+r)^n + FV/(1+r)^n`
Where C = Annual coupon payment and
FV = Face value of the bond,
r = Interest rate, and
n = Number of years.
Calculating Present Value of Bond for 3 Years:
PV = C/(1+r)^1 + C/(1+r)^2 + C/(1+r)^3 + FV/(1+r)^3
= ($1,000/1.0422) + ($1,000/1.0484^2) + ($1,000/1.0576^3) + ($1,000/1.0638^4)
= $961.54
Future Value (FV) = Face value + interest.
Since it is a 3-year bond, the face value will be $1000.
We are given that the bond makes annual coupon payments.
Since it is a 3-year bond, it will make 3 coupon payments.
Calculating the Future Value of the bond for 3 Years:
FV = $1,000 + ($1,000 x 4.84%) + ($1,000 x 4.84%) + ($1,000 x 4.84%)
= $1,147.32
Using the formula for zero rate of interest, we have:
r = [(FV/PV)^1/n]-1= [(1,147.32/961.54)^1/3]-1= 0.0516 or 5.16%
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A T-bill quote sheet has 60-day T-bill quotes with a 5.25 ask and a 5.29 bid. If the bill has a $10,000 face value, what is the cost to buy this T-Bill from a dealer?
The cost to buy this T-Bill from a dealer is approximately $9,912.92.
To calculate the cost of buying a T-Bill from a dealer, we need to determine the purchase price, which is the bid price.
Given:
Face value of T-Bill (FV) = $10,000
Bid rate = 5.29%
To calculate the cost, we can use the following formula:
Cost = FV / (1 + (Bid rate * Days / 360))
Where:
Bid rate = 5.29%
Days = 60 (since it's a 60-day T-Bill)
360 = Number of days in a year (for simplicity)
Substituting the values into the formula:
Cost = $10,000 / (1 + (0.0529 * 60 / 360))
Cost = $10,000 / (1 + (0.0529 * 0.1667))
Cost = $10,000 / (1 + 0.0088173)
Cost = $10,000 / 1.0088173
Cost ≈ $9,912.92
Therefore, the cost to buy this T-Bill from a dealer is approximately $9,912.92.
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Bonus Question: Which of the following is true? When a country's currency depreciates, it is more likely to increase its imports When a country's currency appreciates, it is more likely to increase its imports When a country's currency appreciates, it is more likely to decrease its imports When a country's currency appreciates, it is more likely to increase its exports
When a country's currency appreciates, it is more likely to decrease its imports. The appreciation of a currency can have an impact on a country's trade balance by reducing import levels and potentially increasing export competitiveness .
When a country's currency appreciates, it means that the value of its currency increases relative to other currencies. This makes imports more expensive for the country because it requires more of its currency to purchase the same amount of goods or services denominated in a foreign currency. Consequently, it becomes less attractive and more costly for domestic consumers and businesses to buy imported goods.
The appreciation of a country's currency affects the prices of imported goods in two ways. First, it directly increases the price of imported goods because more currency is needed to purchase the same quantity. Second, it indirectly affects the prices by increasing the cost of imported raw materials and components used in domestic production, which can lead to higher prices for finished goods.
The increase in import prices can result in a decrease in the demand for imported goods. Domestic consumers and businesses may choose to substitute imported goods with domestically produced alternatives or seek cheaper alternatives. As a result, when a country's currency appreciates, it is more likely to decrease its imports.
When a country's currency appreciates, it becomes more expensive to import goods due to the increased exchange rate. This leads to a decrease in the demand for imported goods as they become relatively more costly compared to domestic alternatives.
Therefore, the statement "When a country's currency appreciates, it is more likely to decrease its imports" is true. The appreciation of a currency can have an impact on a country's trade balance by reducing import levels and potentially increasing export competitiveness, although the latter is not addressed in the given statement.
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. Acceptance Sampling As the supervisor in charge of shipping and receiving, you need to determine the average outgoing quality in a plant where the known incoming lots from your 3. Such a plan provides you with a probability of acceptance of each lot 0.79(79%). The average outgoing quality for the plant is = 6 (enter your response as a percentage rounded to two decimal places).
The average outgoing quality in the plant is 21%.
To determine the average outgoing quality in the plant, we can use the concept of acceptance sampling. In this case, we have three known incoming lots, and each lot has a probability of acceptance of 0.79 or 79%.
The average outgoing quality can be calculated using the following formula:
Average Outgoing Quality = (1 - Probability of Acceptance) * 100
In this case, the probability of acceptance is 0.79 or 79%, so we can calculate the average outgoing quality as follows:
Average Outgoing Quality = (1 - 0.79) * 100 = 0.21 * 100 = 21%
Therefore, the average outgoing quality in the plant is 21% (rounded to two decimal places).
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Have you encountered any failures in a project at school or at
work? What change in the project could have led it towards success
instead of failure?
Project failures can occur due to various reasons, including poor planning, inadequate communication, lack of resources, unrealistic expectations, scope creep, and ineffective risk management, among others. To increase the chances of success, the following changes could be considered:
1. Robust planning: Developing a well-defined project plan that includes clear objectives, realistic timelines, and a comprehensive understanding of project requirements can set the foundation for success. It's important to involve key stakeholders, identify potential risks, and allocate resources effectively.
2. Effective communication: Communication plays a crucial role in project success. Establishing open and transparent channels of communication among team members, stakeholders, and project leaders can enhance collaboration, ensure alignment, and address issues proactively. Regular project updates, meetings, and documentation can contribute to better communication.
3. Stakeholder engagement: Engaging stakeholders throughout the project lifecycle is vital. Understanding their expectations, addressing concerns, and involving them in decision-making processes can help build trust and ensure their support. Regularly soliciting feedback and incorporating it into the project plan can increase stakeholder satisfaction and reduce the risk of misunderstandings.
4. Agile and adaptive approach: Embracing an agile mindset allows for flexibility and adaptability in the face of changing circumstances. Breaking down the project into smaller, manageable iterations and conducting regular assessments and adjustments can help identify and resolve issues early on, leading to more successful outcomes.
5. Risk management: Proactively identifying and managing project risks is essential. Conducting thorough risk assessments, developing mitigation strategies, and regularly monitoring and reviewing risks throughout the project can help minimize potential disruptions and increase the chances of success.
It's important to note that each project is unique, and the specific changes required for success may vary depending on the project's nature, context, and challenges. Conducting post-project reviews and learning from failures can also provide valuable insights for future projects and continuous improvement.
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What is the present value of a perpetual stream of cash flows that pays
$80,000
at the end of year one and then grows at a rate of
5%
per year indefinitely? The rate of interest used to discount the cash flows is
10%.
The present value of the perpetual stream of cash flows is $1,600,000.
To calculate the present value of a perpetual stream of cash flows, we can use the formula:
PV = CF / (r - g)
where PV is the present value, CF is the cash flow, r is the discount rate, and g is the growth rate.
In this case, the cash flow is $80,000 at the end of year one, the discount rate is 10%, and the growth rate is 5%.
Using the formula, the present value can be calculated as:
PV = $80,000 / (0.10 - 0.05)
PV = $80,000 / 0.05
PV = $1,600,000
Therefore, the present value of the perpetual stream of cash flows is $1,600,000.
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Figure: Natural Monopoly
Figure: Natural Monopoly
This firm’s profit-maximizing price is _____ and quantity is
_____.
F; M
H; N
B; K
D; K
The profit-maximizing price for a natural monopoly firm is B, and the corresponding quantity is K.
In the context of a natural monopoly, where a single firm has control over the market due to high barriers to entry, the profit-maximizing price and quantity are determined by the intersection of marginal cost (MC) and marginal revenue (MR).
The profit-maximizing price occurs where MC equals MR. Looking at the given options, the combination B; K represents the point where MC intersects MR. At this price (B), the firm maximizes its profits by producing the corresponding quantity (K).
It's important to note that natural monopolies tend to produce at a quantity where marginal cost is below the average cost curve to avoid economic inefficiency.
Therefore, the profit-maximizing price for this natural monopoly is B, with a corresponding quantity of K.
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Are the market-driven customer needs and wants? Give
examples of products or services that are offered because of
customer needs.
Yes, market-driven is focused on customer needs and wants. Market-driven implies creating a product or service that appeals to the wants and needs of the target market. It can also be called customer-driven.
What are some examples?Here are some examples of products or services that are offered because of customer needs:
Netflix - Provides video streaming and rental services that cater to customers' preferences for a subscription-based video streaming service.
Uber - Provides car transportation services that cater to customers who want to book a ride online without going through the hassle of calling a taxi or waiting for one to arrive.
Amazon - Offers an online marketplace that caters to customers who want to buy products online from the comfort of their homes.
Spotify - Provides music streaming services that cater to customers who want to listen to music online without having to purchase the album.
In conclusion, market-driven organizations aim to meet customers' needs and wants by providing products and services that meet their demands.
These examples prove that companies can create a successful business model by focusing on customer needs and wants.
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A sovereign borrower is considering a $100 million loan for a 4-year maturity. It will be an amortizing loan, meaning that the interest and principal payments will total, annually, to a constant amount over the maturity of the loan. There is, however, a debate over the appropriate interest rate. The borrower believes the appropriate rate for its current credit standing in the market today is 9%, but a number of international banks with which it is negotiating are arguing that is most likely 13%, at the minimum 9%. What impact do these different interest rates have on the prospective annual payments?
A. The annual payment, if the interest rate was 9%, is $ _____.
B. The annual payment, if the interest rate was 13%, is $ _____
A. If the interest rate is 9%, the annual payment for the $100 million loan with a 4-year maturity would be approximately $29,958,324.
B. If the interest rate is 13%, the annual payment for the same loan would be approximately $34,193,653.
To calculate the annual payment for an amortizing loan, we can use the loan amortization formula. The formula is:
Annual Payment = Loan Amount / Present Value Annuity Factor
For a 4-year loan, the Present Value Annuity Factor can be calculated using the interest rate and the number of periods.
A. If the interest rate is 9%, the Present Value Annuity Factor for a 4-year loan is approximately 3.3403. Therefore, the annual payment would be $100 million / 3.3403 = approximately $29,958,324.
B. If the interest rate is 13%, the Present Value Annuity Factor for a 4-year loan is approximately 3.1481. Therefore, the annual payment would be $100 million / 3.1481 = approximately $34,193,653.
The difference in interest rates impacts the annual payment amount, with a higher interest rate resulting in a larger annual payment.
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Calculating Net Present Value/Discounted Cash Flows for Business Valuation Hutspa Contracting Co. is considering purchasing a Dixon Co., a small business located within Hutspa’s service area to reduce their competition in the HVAC services business. The owner of Dixon is willing to sell to Hutspa for the asking price of $360,000.
Dixon Co. will generate cash flows of $62,650 per year for eight years. Assuming the discount rate is 6%, is the asking price from Dixon Co. fair? What advice would you give Hutspa regarding this prospective purchase?
Please provide a detailed explanation related to the advice you are giving Hutspa.
To determine whether the asking price for Dixon Co. is fair, we need to calculate the Net Present Value (NPV) of its cash flows using the discount rate of 6%.
The NPV represents the present value of future cash flows discounted to their current value. If the NPV is positive, it indicates that the investment is expected to generate a return higher than the discount rate, suggesting the asking price may be fair.
Let's calculate the NPV using the following information:
Cash flows: $62,650 per year for eight years.
Discount rate: 6%.
We can use the formula for calculating the NPV:
NPV = CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CFn/(1+r)^n
Where:
CF1, CF2, ..., CFn are the cash flows for each period.
r is the discount rate.
n is the number of periods.
Calculating the NPV:
NPV = $62,650/(1+0.06)^1 + $62,650/(1+0.06)^2 + ... + $62,650/(1+0.06)^8
NPV = $62,650/1.06 + $62,650/1.1236 + ... + $62,650/1.4185
NPV ≈ $58,962.26 + $55,873.97 + ... + $33,632.18
NPV ≈ $358,598.20
The calculated NPV is $358,598.20. Since the NPV is positive, it suggests that the investment in Dixon Co. is expected to generate returns higher than the discount rate of 6%.
Therefore, the asking price of $360,000 appears to be fair.
Advice to Hutspa:
Based on the positive NPV, it seems that purchasing Dixon Co. at the asking price is a favorable investment for Hutspa. The cash flows generated by Dixon Co. are expected to provide a return higher than the discount rate, indicating potential profitability.
However, it is essential for Hutspa to consider other factors before finalizing the purchase:
Due Diligence: Conduct a thorough analysis of Dixon Co.'s financial statements, customer base, contracts, assets, liabilities, and any potential legal or operational risks. This will help uncover any hidden issues and assess the true value of the business.
Synergies: Evaluate the extent to which the acquisition of Dixon Co. will reduce competition and provide Hutspa with a strategic advantage in the HVAC services market. Consider how Hutspa can leverage Dixon Co.'s existing customer base, expertise, and resources to enhance overall business growth and profitability.
Integration and Management: Assess the challenges involved in integrating Dixon Co. into Hutspa's existing operations. Evaluate the capabilities of Hutspa's management team to effectively merge the two businesses and ensure a smooth transition, maintaining customer satisfaction and employee morale.
Financing Options: Explore various financing options to acquire Dixon Co., such as bank loans or leveraging Hutspa's existing assets. Consider the cost of financing and its impact on the overall financial feasibility of the acquisition.
By thoroughly evaluating these aspects and consulting with financial and legal professionals, Hutspa can make an informed decision regarding the purchase of Dixon Co., ensuring it aligns with their strategic goals and offers a favorable return on investment.
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In your own understanding, define human resource management and
briefly describe the critical role it plays in the
organisation.
Human Resource Management (HRM) is the strategic approach of an organization to the management of its workforce, or human resources. It is responsible for the attraction, selection, training, assessment, and rewarding of employees.
HRM plays a critical role in the organization. It is responsible for recruiting the right people for the organization, and ensuring that they have the right skills, training, and support to be successful in their roles. HRM also manages employee relations and ensures that employees are motivated, engaged, and satisfied in their work.
HRM also plays a critical role in developing and implementing strategies that support the overall goals and objectives of the organization. This includes aligning the workforce with the goals of the organization, and developing strategies to attract and retain key talent.
Overall, human resource management is critical to the success of any organization. It ensures that the organization has the right people in the right roles, with the right skills and training to be successful. It also supports employee engagement, development, and advancement, and ensures that the organization is in compliance with labor laws and regulations.
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6. How much do you have to deposit today so that you can withdraw $50,000 a year at the end of years 5 through 9 , and $25,000 at the end of year 10 ? Assume that you can earn an annual rate of 8 percent. a) $170,983 d) $158,318 b) $146,591 e) $159,243 c) $146,737
The amount that needs to be deposited today to meet the withdrawal requirements is $170,983.
To calculate the present value of future cash flows, we can use the formula for the present value of an annuity:
PV = C * [(1 - (1 + r)^(-n)) / r]
where:
PV is the present value,
C is the cash flow per period,
r is the interest rate per period, and
n is the number of periods.
In this case, the cash flows are $50,000 for years 5 through 9 and $25,000 for year 10. The interest rate is 8% per year.
Using the formula, we can calculate the present value of the cash flows:
PV = [tex]$50,000 * [(1 - (1 + 0.08)^{-5}) / 0.08] + $50,000 * [(1 - (1 + 0.08)^{-6}) / 0.08] + $50,000 * [(1 - (1 + 0.08)^{-7}) / 0.08] + $50,000 * [(1 - (1 + 0.08)^{-8}) / 0.08] + $50,000 * [(1 - (1 + 0.08)^{-9}) / 0.08] + $25,000 * (1 / (1 + 0.08)^{10})[/tex]
Calculating this expression, we find that the present value is approximately $170,983.
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Consider a
European call
option with six months to maturity written on a stock. The current
stock price is $100 and the strike price of the option is $95. The stock price follows a binomial
process. Specifically, over each of the next two three-month periods (Δt = 0.25) it is expected to go
up by 10 percent (u = 1.1) or down by 10 percent (d = 0.9). The risk-free rate is 4 percent per annum
with continuous compounding.
(a) What is the price of the option?
(b) Calculate the delta of the call option today and in three months
(c) Explain how you would hedge a short position in this call option using the underlying stock.
Show all the details of the hedging strategy at every period
The price of the European call option is approximately $3.8868, and the delta of the option today is 0.0791, indicating the proportion of shares needed for hedging the short position in the option.
(a) The price of the option, we can use the binomial option pricing model. Since the option has a European style, the price at each node is calculated as the present value of the risk-neutral probability-weighted average of the option values at the next nodes.
Let's denote the up movement factor as u = 1.1, the down movement factor as d = 0.9, the risk-free rate as r = 0.04, the time step as Δt = 0.25, and the strike price as X = $95.
At the final node (T = 0.5 years), the option value is:
C_uu = max(S_T - X, 0) = max(110 - 95, 0) = $15
C_ud = max(S_T - X, 0) = max(90 - 95, 0) = $0
C_dd = max(S_T - X, 0) = max(90 - 95, 0) = $0
Next, we calculate the option values at the previous nodes using the risk-neutral probabilities:
p = (1 + r - d) / (u - d) = (1 + 0.04 - 0.9) / (1.1 - 0.9) = 0.54
q = 1 - p = 1 - 0.54 = 0.46
At the second node (T = 0.25 years):
C_u = e^(-rΔt) * (p * C_uu + q * C_ud) = e^(-0.04 * 0.25) * (0.54 * 15 + 0.46 * 0) ≈ $7.9105
C_d = e^(-rΔt) * (p * C_ud + q * C_dd) = e^(-0.04 * 0.25) * (0.54 * 0 + 0.46 * 0) = $0
Finally, at the initial node (today):
C = e^(-rΔt) * (p * C_u + q * C_d) = e^(-0.04 * 0.25) * (0.54 * 7.9105 + 0.46 * 0) ≈ $3.8868
Therefore, the price of the European call option is approximately $3.8868.
(b) The delta of the call option represents the sensitivity of the option price to changes in the underlying stock price. It can be calculated as the change in option price divided by the change in the stock price.
Delta today:
Δ_u = (C_u - C_d) / (S_u - S_d) = ($7.9105 - $0) / (110 - 90) = 0.0791
Delta in three months:
Δ_uu = (C_uu - C_ud) / (S_uu - S_ud) = ($15 - $0) / (121 - 99) = 0.1071
Delta at each node represents the proportion of shares that should be held in the hedging portfolio to replicate the option payoff.
(c) To hedge a short position in this call option using the underlying stock, the delta can be used to determine the number of shares needed in the hedging portfolio.
At each period, the delta gives the proportion of shares to be held. Since the delta changes with the stock price, the hedging strategy needs to be adjusted periodically.
For every short call option contract, 0.0791 shares of the underlying stock should be held in the hedging portfolio to replicate the option's payoff.
The hedge, the portfolio needs to be rebalanced periodically. If the delta changes, the proportion of shares in the portfolio should be adjusted accordingly. In this case, the delta can be recalculated at each time period based on the current stock price, strike price, risk-free rate, and time step. The portfolio should be rebalanced by buying or selling the appropriate number of shares to match the new delta.
For example, if the delta in three months (Δ_uu) is calculated to be 0.1071, it means that for every short call option contract, 0.1071 shares of the underlying stock should be held in the hedging portfolio at that time. The portfolio would need to be adjusted by buying or selling shares to match the new delta of 0.1071.
The hedging strategy involves adjusting the portfolio at each time period according to the updated delta to ensure that the option's price movements are offset by changes in the stock position. This helps mitigate the risk of the short call option position.
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Identify various initiatives taken by Jack Welch which led to transformation of GE
Jack Welch is known for transforming General Electric (GE) into one of the most successful and competitive companies in the world. Some of the initiatives taken by Jack Welch which led to the transformation of GE are:1. Boundarylessness:
This was an initiative taken by Jack Welch to foster a culture of openness and transparency within the company. It was aimed at breaking down the barriers that existed between departments and encouraging employees to work together to achieve common goals.
2. Six Sigma: Jack Welch introduced Six Sigma as a way of improving the quality of the products and services offered by GE. Six Sigma is a data-driven approach that aims to reduce defects and improve efficiency. It involves identifying and analyzing processes, measuring performance, and making improvements based on the data collected.
3. Work-Out: This was an initiative aimed at improving communication and decision-making within the company. It involved bringing employees together to discuss problems and come up with solutions. The aim was to empower employees and encourage them to take ownership of their work.
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You are buying a house and you are financing the purchase with a mortgage of $180,000. The mortgage has a 30 year term and requires monthly payments. The mortgage charges an interest rate of 0.5% every month. What is the monthly payment?
The monthly payment for the mortgage is $912.98. This amount will be paid monthly by the borrower for 30 years to finance the purchase of the house. The mortgage has an interest rate of 0.5% per month.
Given: That the mortgage amount is $180,000 and has a term of 30 years, we can calculate the monthly payment using the formula: PV = PMT × [(1 – (1 / (1 + r)n)) / r]Where, PV = Present value of loan. PMT = Monthly payment. r = Rate of interest. n = Number of payments. PV = $180,000r = 0.5% per month or 0.005n = 30 years × 12 months/year = 360 months. Plugging in the values, we get: PMT = PV / [(1 – (1 / (1 + r)n)) / r]PMT = $180,000 / [(1 – (1 / (1 + 0.005)360)) / 0.005]PMT = $912.98 (approx.)
When buying a house and financing the purchase with a mortgage of $180,000, we can calculate the monthly payment by using the formula PV = PMT × [(1 – (1 / (1 + r)n)) / r]. The mortgage has a term of 30 years and requires monthly payments. It charges an interest rate of 0.5% every month.
Plugging in the given values, we get the monthly payment as $912.98. This amount will be paid monthly by the borrower for 30 years to finance the purchase of the house.
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Three years ago, you invested in the Future Investco Mutual Fund by purchasing 1,000 shares of the fund at a net asset value of $30.00 per share. Because you did not need the income, you elected to reinvest all dividends and capital gains distributions. Today, you sell your 1,100 shares in this fund for $31.22 per share. What is the compounded rate of return on this investment over the 3-year period?
Select one:
a 9.22%
b. 4.61%
c. 2.30%
d. 14.47%
e. 2.28%
The compounded rate of return on the investment over the 3-year period is approximately 4.88%, closest to answer choice b) 4.61%.
To determine the compounded rate of return on the investment, we need to consider the initial investment, reinvested dividends and capital gains, and the final sale proceeds.
Initial investment: 1,000 shares x $30.00 = $30,000
Final sale proceeds: 1,100 shares x $31.22 = $34,342
Dividends and capital gains distributions are reinvested, so we need to calculate the total value of the investment at the end of the 3-year period.
Total value at the end = $30,000 x (1 + Rate of return)^3
We can rearrange the formula to solve for the rate of return:
Rate of return = (Total value at the end / Initial investment) ^ (1/3) - 1
Rate of return = ($34,342 / $30,000) ^ (1/3) - 1
Rate of return ≈ 0.0488 or 4.88%
Therefore, the compounded rate of return on this investment over the 3-year period is approximately 4.88%.
The closest option to this rate is answer choice b. 4.61%.
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Suppose you invest $150,000 dollars in a savings account that earns 9% compounded monthly. How much money can you withdraw on a monthly basis from this account for the next 24 months? $9,757.36 $3,360.46
$4,568.47
$6,852.71
QUESTION 6 If you deposit $1,000 every year in 20 years in a savings account that earns 7% compounded yearly. What is the future value of this series at year 20 if payments are made at the beginning of the period? $65,500.45 $40,995,49 $43,865.18 $60,648.57
The amount of money that can be withdrawn on a monthly basis from the savings account for the next 24 months is $4,568.47.
To calculate compound interest the monthly withdrawal amount, we can use the formula for the future value of an ordinary annuity:
FV = P * [(1 + r)^n - 1] / r
Where:
FV = Future Value
P = Payment amount per period
r = Interest rate per period
n = Number of periods
In this case, the initial investment is $150,000 and the interest rate is 9% compounded monthly. The number of periods is 24 months.
First, we need to calculate the interest rate per period by dividing the annual interest rate by 12 (since it's compounded monthly):
r = 9% / 12 = 0.0075
Now, we can substitute the values into the formula:
FV = 150,000 * [(1 + 0.0075)^24 - 1] / 0.0075
FV ≈ 150,000 * [1.22019 - 1] / 0.0075
FV ≈ 150,000 * 0.22019 / 0.0075
FV ≈ 4,568.47
Therefore, the monthly withdrawal amount from the account for the next 24 months would be approximately $4,568.47.
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Question 1
4 pts
Laura has $10 million in invested capital, $4 million in EBIT, and is in the 50% federal- plus-state tax bracket. Laura has a 30% debt-to-capital ratio and pays 10% on its debt.
What is the ROE for Laura?
O 19.65%
12.14%
26.43%
Question 2
4 pts
KSS has $1000 par value bonds with a 9% coupon rate and coupons paid semi-annually. that mature in 25 years. The bonds are selling for $1,050. KSS has an average tax rate of 30%. KSS is in the 40% marginal tax bracket. What is the after-tax cost of debt?
2.80%
3.95%
5.11%
Question 3
4 pts
KSS common stock has a beta of 1.2. The market long term expected return is 12% and the risk-free rate is 2%. What is the cost of retained earnings?
O 14.0%
O 16.6%
O 22.0%
The ROE for Laura is approximately 52.86%. The after-tax cost of debt for KSS is approximately 6.3%. The cost of retained earnings for KSS is approximately 21.2%.
1: To calculate the Return on Equity (ROE) for Laura, we need to use the following formula: ROE = Net Income / Shareholders' Equity
First, let's calculate the net income: Net Income = EBIT - Interest Expense
We need to calculate the interest expense based on the debt-to-capital ratio and the interest rate paid on debt: Interest Expense = Debt-to-Capital Ratio × Invested Capital × Interest Rate on Debt
Debt-to-Capital Ratio = Debt / (Debt + Equity)
Debt-to-Capital Ratio = 0.30 (given)
Invested Capital = Debt + Equity
Invested Capital = $10 million (given)
Interest Rate on Debt = 10% (given)
Let's calculate the interest expense: Interest Expense = 0.30 × $10 million × 0.10
Interest Expense = $300,000
Next, calculate the net income: Net Income = EBIT - Interest Expense
Net Income = $4 million - $300,000
Net Income = $3.7 million
Now, let's calculate the ROE: ROE = Net Income / Shareholders' Equity
Since the tax rate is not given, we'll assume that the net income already accounts for taxes paid.
Shareholders' Equity = Invested Capital - Debt
Shareholders' Equity = $10 million - 0.30 × $10 million
Shareholders' Equity = $10 million - $3 million
Shareholders' Equity = $7 million
ROE = $3.7 million / $7 million ≈ 0.5286 or 52.86%
Therefore, the ROE for Laura is approximately 52.86%.
2: To calculate the after-tax cost of debt for KSS, we need to use the following formula: After-Tax Cost of Debt = Pre-Tax Cost of Debt × (1 - Tax Rate)
First, let's calculate the pre-tax cost of debt. The pre-tax cost of debt is the coupon rate on the bonds: Pre-Tax Cost of Debt = Coupon Rate = 9% (given)
Next, let's calculate the tax rate: Tax Rate = Marginal Tax Rate = 40% (given)
Now, let's calculate the after-tax cost of debt:
After-Tax Cost of Debt = Pre-Tax Cost of Debt × (1 - Tax Rate)
After-Tax Cost of Debt = 9% × (1 - 0.30)
After-Tax Cost of Debt = 9% × 0.70
After-Tax Cost of Debt = 0.063 or 6.3%
Therefore, the after-tax cost of debt for KSS is approximately 6.3%.
3: To calculate the cost of retained earnings for KSS, we can use the Capital Asset Pricing Model (CAPM). The formula for CAPM is as follows: Cost of Retained Earnings = Risk-Free Rate + Beta × (Market Return - Risk-Free Rate)
Risk-Free Rate = 2% (given)
Beta = 1.2 (given)
Market Return = 12% (given)
Cost of Retained Earnings = 2% + 1.2 × (12% - 2%)
Cost of Retained Earnings = 2% + 1.2 × 10%
Cost of Retained Earnings = 2% + 0.12
Cost of Retained Earnings = 2.12 or 21.2%
Therefore, the cost of retained earnings for KSS is approximately 21.2%.
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When a customer transferred $50,000 from his checking account to a mutual fund account, M1 increases O M2 increases M2 decreases M1 decreases
When a customer transferred $50,000 from his checking account to a mutual fund account, the correct impact on the money supply is M1 decreases and M2 remains unchanged.
M1 consists of cash, checking deposits, and traveler's checks. M1 is the most liquid of the money supply because it is composed of assets that are readily available to spend. M2 is M1 plus short-term time deposits in banks and certain money market funds. M2 is a broader definition of the money supply. It contains everything that M1 contains plus other components that aren't as liquid as M1.
When a customer transferred $50,000 from his checking account to a mutual fund account, the funds move from M1 to a less liquid category in M2. As a result, M1 decreases, and M2 remains unchanged since the amount was transferred from a more liquid component to a less liquid component and there was no reduction in the money supply. Therefore, the correct impact on the money supply is M1 decreases, and M2 remains unchanged.
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Should companies (e.g., CBS Sports) be able to offer fantasy
sports options using college football and basketball players' names
and likenesses? Does this constitute misappropriation? Why or why
not?
Companies like CBS Sports should not be able to offer fantasy sports options using college football and basketball players' names and likenesses. This constitutes misappropriation. Misappropriation is the illegal use of another person’s name, likeness, or other recognizable aspects of their personality for a commercial purpose.
College players’ names and likenesses should not be used by CBS Sports without their consent and without proper compensation. Furthermore, the NCAA has strict rules and regulations against the use of college athletes’ names and likenesses. The NCAA prohibits athletes from using their names, images, or likenesses for commercial purposes.
They can, however, use them for non-commercial purposes like social media, blogs, and personal websites without violating any NCAA rules or regulations. Therefore, CBS Sports should not use the names and likenesses of college football and basketball players without their consent and without proper compensation.
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A restaurant prepares 200.00 pizza slices and sells them at a rate of $10.00/slice. Expenses for the restaurant include raw material for pizza at $4.00 per slice, $117.00 for monthly rental and monthly insurance of $35.00. Lost sale are taken as $6.00 per unhappy customer. Leftover pizza can be sold for $2.00. The restaurant is open only for 25 days in a month. Today there was a party at nearby office so the demand for pizza went up to 225.00 slices. How much profit could the restaurant earn today?
___________Submit
Answer format: Currency: Round to: 0 decimal places.
The restaurant could earn a profit of $810.00 today by subtracting the expenses from the revenue, which is calculated as the number of slices sold (225) multiplied by the selling price per slice ($10.00).
Today, with a demand for 225 pizza slices, the restaurant can earn a profit of $810.00. This is calculated by subtracting the total expenses, including raw material costs, monthly rental, insurance, and potential lost sales, from the revenue generated by selling the slices at $10.00 each.
The revenue for the day would be $2,250.00 (225 slices * $10.00/slice), and the expenses amount to $1,440.00 ($900 for raw materials + $117 for rental + $35 for insurance + $288 for potential lost sales). The profit is obtained by subtracting the expenses from the revenue: $2,250.00 - $1,440.00 = $810.00. Therefore, the restaurant could earn a profit of $810.00 today.
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Ben and Jerry’s Ice Cream started as a small ice cream stand in Vermont and based its products on pure, locally-supplied dairy and agricultural products. The company grew quickly and is now a global brand owned by Unilever, an international consumer goods company co-headquartered in Rotterdam, The Netherlands, and London, United Kingdom.
According to its statement of values, Ben and Jerry’s mission is threefold: "Our Product Mission drives us to make fantastic ice cream—for its own sake. Our Economic Mission asks us to manage our Company for sustainable financial growth. Our Social Mission compels us to use our Company in innovative ways to make the world a better place."
With its expansion, however, Ben and Jerry’s had to get its milk—the main raw ingredient of ice cream—from larger suppliers, most of which use confined-animal feeding operations (CAFOs). CAFOs have been condemned by animal-rights activists as harmful to the well-being of the animals. Consumer activists also claim that CAFOs contribute significantly to pollution because they release heavy concentrations of animal waste into the ground, water sources, and air.
In a 150-200-word response, please answer the following questions:
Do you believe the use of CAFOs compromise Ben and Jerry’s mission?
Why or why not?
Do you believe the growth of Ben and Jerry’s contributed to any form of greenwashing by the parent company, Unilever?
If so, how?
If you were in a leadership position at Ben and Jerry’s, how would you use the Lens Model Framework to make decisions about Ben and Jerry’s mission and company direction in the future?
The use of CAFOs in sourcing milk may also compromise Ben and Jerry's Social Mission because it conflicts with their commitment to animal welfare and environmental sustainability. The boom of Ben and Jerry's underneath Unilever's ownership might be seen as contributing to greenwashing, as it may create a belief of environmental obligation while accomplishing practices that contradict it.
The use of CAFOs in sourcing milk does potentially compromise Ben and Jerry's project, especially its Social Mission. Ben and Jerry's has emphasized its commitment to sustainable practices and the nicely-being of animals, however, CAFOs were criticized for their terrible impact on animal welfare and the environment. By counting on suppliers that use CAFOs, there's a misalignment with the corporation's values and dreams.
The growth of Ben and Jerry's under Unilever's ownership may also have contributed to a shape of greenwashing. While Ben and Jerry's keeps its image as a socially responsible logo, the reliance on milk from CAFOs contradicts that image. Unilever, because the figure organization, will be seen as permitting this inconsistency to exist while cashing in on the belief of Ben and Jerry's dedication to sustainability.
If in a leadership position at Ben and Jerry's, the Lens Model Framework can be utilized for manual choice-making. This would involve thinking about more than one dimension of the organization's undertaking, consisting of product nice, monetary growth, and social effect. Through the framework, one could verify the trade-offs and make informed selections that align with the organization's values and lengthy-time period sustainability.
This would possibly involve looking for opportunity resources of milk, promoting sustainable farming practices, and attractive in transparent communication with stakeholders to hold accept as true and uphold the challenge.
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King Nothing is evaluating a new 6-year project that will have annual sales of $385,000 and costs of $269,000. The project will require fixed assets of $485,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 40 percent. What is the operating cash flow for Year 3?
$83,648
$125,472
$91,949
$106,848
$101,933
The operating cash flow for Year 3 is $106,848 .Option D is correct. To calculate the Operating Cash Flow (OCF) for Year 3, we need to calculate the following:
Sales revenue,Cost of goods sold,Depreciation EBIT (Earnings before Interest and Taxes), Taxes EBIT (1 – tax rate)
Depreciation, OCF = EBIT + depreciation - taxes.
The given data:Annual sales = $385,000, Costs = $269,000, Fixed Assets = $485,000, Tax rate = 40%.
Depreciation = 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76% for the 6 years.Using the straight-line method, we can find the annual depreciation.
Amount depreciated in year 1 = (485,000 × 0.20) is 97,000
Amount depreciated in year 2 = (485,000 × 0.32) = 155,200
Amount depreciated in year 3 = (485,000 × 0.192) = 93,120
Amount depreciated in year 4 = (485,000 × 0.1152) = 55,910.40
Amount depreciated in year 5 = (485,000 × 0.1152) = 55,910.40
Amount depreciated in year 6 = (485,000 × 0.0576) = 27,936
Thus, the fixed assets for the Year 3 will be $191,760 (97,000+155,200+93,120).
Now, we can calculate the following:
Sales revenue = $385,000, Cost of goods sold = $269,000, Depreciation = $93,120,
EBIT = $22,880 ($385,000 – $269,000 – $93,120)
Taxes = $9,152 ($22,880 × 0.40)
OCF = $106,848 ($22,880 + $93,120 – $9,152)
Therefore, the operating cash flow for Year 3 is $106,848. Option D) $106,848.
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The subject of these questions is from Legal Strategy
1. The issue of common stock will result in ( ) of the rights of existing shareholders.
2. The purchase of a substantial block of shares in a publicly-traded corporation must be conducted through a ( )
3. A check or other negotiable instrument may be handed over to another person with an ( ) and the new holder becomes the sole party eligible to exercise the rights specified on the instrument, for example, to receive the sum of money indicated on the check.
4. The set of rules to determine which laws will be applied to a dispute is called ( )
1. The issue of common stock will result in dilution of the rights of existing shareholders.
When a company issues additional common stock, it increases the total number of outstanding shares, which can dilute the ownership and voting rights of existing shareholders. Their proportional stake in the company may decrease, potentially reducing their control and influence over corporate decisions.
2. The purchase of a substantial block of shares in a publicly-traded corporation must be conducted through a securities exchange.
When purchasing a substantial block of shares in a publicly-traded corporation, the transaction typically takes place through a securities exchange such as the stock market. This ensures that the transaction is transparent, regulated, and fair for all parties involved. The exchange provides a platform for buyers and sellers to trade securities, facilitating the purchase and sale of shares in a transparent and efficient manner.
3. A check or other negotiable instrument may be handed over to another person with an endorsement, and the new holder becomes the sole party eligible to exercise the rights specified on the instrument, for example, to receive the sum of money indicated on the check.
An endorsement on a negotiable instrument, such as a check, signifies the transfer of ownership rights to another party. When a check is endorsed, the new holder becomes the sole party eligible to exercise the rights associated with that instrument. This means that the new holder has the right to receive the sum of money specified on the check.
4. The set of rules to determine which laws will be applied to a dispute is called choice of law.
Choice of law refers to the set of rules and principles used to determine which jurisdiction's laws will govern a particular legal dispute. It involves determining which legal system, whether it be based on national, international, or contractual principles, will be applied to resolve the dispute. The choice of law rules help establish consistency and predictability in cross-border transactions and legal matters.
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How much would you have to invest today at an interest rate of 8% th have an annuity of $4800 per year for 7 years, with nothing left in the bank at the end of the 7 years?
You would need to invest $60000 today in order to have an annuity of $4800 per year for 7 years, with nothing left in the bank at the end of the 7 years.
To find out how much you would need to invest today, we can use the formula for the present value of an annuity. The formula is:
PV = PMT * (1 - (1 + r)^(-n)) / r
Where:
PV is the present value (the amount you need to invest today)
PMT is the annuity payment per period ($4800 per year)
r is the interest rate (8% or 0.08 as a decimal)
n is the number of periods (7 years)
Plugging in the values, we get:
PV = $4800 * (1 - (1 + 0.08)^(-7)) / 0.08
Simplifying the equation:
PV = $4800 * (1 - 1.08^(-7)) / 0.08
Using a calculator, we can calculate the present value:
PV = $4800 * (1 - 0.5136) / 0.08
PV = $4800 * 0.4864 / 0.08
PV = $48000 / 0.08
PV = $60000
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Last year, Consolidated Industries had a return of 15.1%. ק If the risk free rate was 3.3%, what risk premium did investors earn last year? 9.80% 11.80% 8.80% 6.80% 10.80%
The risk premium that the investors earn is option B) 11.80%.
The calculation of the risk premium is done by subtracting the risk-free rate of return from the expected rate of return of a stock or a portfolio
The risk premium is the difference between the expected return on a risky asset and the risk-free rate of return. It can be calculated as the difference between the expected return on a portfolio and the risk-free rate of return. The risk premium is the reward that an investor demands for investing in a risky asset. It is the compensation that an investor requires for taking on additional risk.
So the formula for risk premium = Expected return - Risk-free rate of return
Given, Return of Consolidated Industries = 15.1%
Risk-free rate of return = 3.3%
Therefore, the risk premium of Consolidated Industries= 15.1 - 3.3= 11.80%
Therefore, the risk premium that the investors earn is 11.80%.
Hence, option B is the correct option
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