QUESTION 8 Consider the following Taylor rule i=0.02+0.75y+0.25(x-2% ) Notice that the central bank puts a higher policy weight on output than inflation. Imagine that inflation is 2%. How large should be the decline output relative to the full-employment level for the central bank to hit the zero lower bound? O A.0.00% O B. 1.27% O C.2.67% O D.4.00%

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A: Generally, the risk involved in an investment is measured by the volatility. Volatility tells about…

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A: Cost of Capital or Weighted average cost of capital (WACC) is determined as below:

Q: On August 8, 1981, American Savings offered an insured tax-free account paying 23.24% compounded…

A: Future Value: The future value is the amount that will be received at the end of a certain period.…

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A: Real interest rate (constant dollar interest rate) refers to those interest rate of the company…

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A: Semi - annual payment can be calculated as: = Total amount / Present Value Factor of annuity (i%, n…

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A: Profitability Index is the ratio of Present value of cash inflows to the Initial cost of the…

Q: ackson Inc. and Simon are two identical firms operating in identical markets. Jackson is unlevered…

A:

Q: 6c A large profitable corporation is considering a capital investment of $50.000. The equipment has…

A: Tax for year 2 will be calculated on net income. Tax for year 2 =(Annual gross…

Q: Mike joins a savings program where he deposits $1000 at the begint he will earn a perpetuity paying…

A: Here,

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A: The security which offers a higher after tax return should be considered as a better investment…

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Q: nswer the following: 1. Calculate the NPV for each proposed project. If the company was able to…

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A: Here, Dividend Pay-out Ratio is 35% EPS is $5 Risk Free Rate is 4.2% Company's Risk Premium 5%…

Q: what does a perfect hedge mean? when is a hedge perfect?   by ur own word please

A: A perfect hedge is a position taken by an investor that eliminates the risk of an existing position…

Q: What’s the difference between order and volume discounts? Justify your answer.

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Q: What is the value of this levered firm? EBIT is $750,000 with an unleveredcost of equity of 10%, tax…

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Q: Mid-State BankCorp recently declared a 7-for-2 stock split. Prior to the split, the stock sold for…

A: Here, Price per share sold is $100 Stock Split is 7 for 2 that means 7 shares were issued for every…

Q: Prob. Return (%) B 0.1 40 G 0.2 30 O 0.3 15 L 0.2 2 S 0.2 -12 where B-Bloom,G-Good,…

A: Risk is a factor which arises due to the possibility of differences between the actual outcome and…

Q: Mr. Harrington had a new heating system installed in his office. The balance owing to the heating…

A: Here,

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A: 7. Financial Markets is the market where buying and selling of financial securities takes place. It…

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Q: Finding the Ordinary and Exact Interest

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A: IRR refers to the annualized rate of return for a given project. Higher the IRR, better the…

Q: 9. Calculating Returns and Variability You've observed the following returns on Yamauchi…

A: a. The Arithmetic average return on the stock over the five-year period=-10%+24%+21%+11%+8%5=10.80%…

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Q: Dandil owns two debt  payments - a payment of $5049 that was due today and a payment of 1906 due in…

A: The concept of the time value of money states that the same amount of money is worth more today than…

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A: The due date, also called as the final payment, is when certain accruals are due.

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A: Present value of future cash flow is value of money today that is equivalent to future cash flow…

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A: Spot rate in year 1 (S1) = 6% S2 = 6.2% S3 = 6.3% S4 = 6.5%

Q: Compute the IRR statistic for Project E. The appropriate cost of capital is 8 percent. (Do not round…

A: Year 0 1 2 3 4 5 Cash flows -1,000 350 480 520 300 100

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Q: the market value of A

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.