Answered: What are the determinants of Required…

What are the determinants of Required Rate of Return. Explain the reasons of not shifting SML curve upward or downward even after changes occur in determinants of nominal Risk free rate?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 8QE

See similar textbooks

Related questions

Q: Suppose that TipsNToes, Inc.'s capital structure features 55 percent common equity, 45 percent debt…

A: Weight of common equity = 0.55 Weight of debt = 0.45 Cost of equity = 0.14 Before tax cost of debt =…

Q: For an interest rate of 12% per year, compounded quarterly, the effective interest per six months is…

A: APR = 12% Number of compounding per year (m) = 4

Q: What is the bid-ask spread? What are the components of the bid-ask spread. Use an original example…

A: The greatest amount a buyer will pay for a security is referred to as the bid price and the lowest…

Q: What is the risk-return tradeoff that arises when . firm manages its working capital? Give tangible…

A: Financial risk is referred as the possibility or chance of losing the investment, basically an…

Q: If Happy Corporation has cost of goods sold of P300,000, sales of P600,000, and inventory of…

A: Inventory turnover is calculated as ratio of cost of goods sold and ending inventory balance. The…

Q: Determine the mode of the set of values. (Enter your answers as a comma-separated list. If there is…

A: Answer - Formula for Mode Calculation- Mode is the value that occurs with the greatest number of…

Q: (b) According to the new renumeration scheme, the starting pay of a technician is RM2029 per month…

A: Given, Meaning of Remuneration:- It's the compensation which an employee gets. It is the base salary…

Q: Keys Corporation's 5-year bonds yield 5.10% and 5-year T-bonds yield 4.40%. The real risk-free rate…

A: The DRP (Default Risk Premium) is a payment made to financial lenders or investors in the event that…

Q: (a) Find the monthly payment for this loan. Monthly Payment: $ (b) Find the balance of the loan…

A: Monthly payment refers to the amount which is to be paid at regular intervals for a particular…

Q: A firm has a cost of debt of 7 percent and a cost of equity of 15 percent. The debt-asset ratio is…

A: Cost of debt = 7% Cost of equity = 15% Debt-asset ratio = 0.40 Equity-asset ratio = 1-0.40 = 0.60

Q: . An investor buys a 150 TL investment fund from the bank and sells it for 165 TL after 25 days.…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

Q: Investor Dan has $740,000 to invest in a CD and a mutual fund. The CD yields 3.6% and the mutual…

A: Profit maximization is the process of finding out the maximum returns for an investment based on the…

Q: Q1. You plan to contrībute Ł6,000 at the end of every three months (that is, at each quarter-end) in…

A: In order to know the time period required to reach a certain financial goal of an individual or…

Q: Please explain if a company has already taken too much debt (exceeded the amount that they can…

A: A leveraged buyout happens when a business acquires another company nearly completely using borrowed…

Q: 8. Find the net present value of the cash flows shown below.

A: Net present value (NPV) of an alternative/project refers to the variance between the initial…

Q: You are to receive $ 400,000 exactly 5 years from now. You do not want to wait for the money and…

A: Present value of money can be calculated as: = Future value / ( 1 + Interest rate) ^ years

Q: If a person deposits $10,000 at 10% per year simple interest, what compound interest rate would…

A: Compound interest (also known as compounding interest) is the interest on a loan or deposit that is…

Q: Given the information below for HooYah! Corporation, compute the expected share price at the end of…

A: Given: Year 2014 2015 2016 2017 2018 2019 Price $22.00 $58.50 $130.00 $207.00 $97.00 $27.50…

Q: BUS 038 : Business Computations 9. You purchase goods on an invoice dated July 5 with terms of 4/15,…

A: 4/15, n/45 ROG stands for that the credit period starts from the date when goods are received by the…

Q: Two year ago, you purchased a 6% coupon bond with 10 years to maturity and had a yield to maturity…

A: Holding period return (HPR) is the return which is earned by the company by holding a security for a…

Q: Changing compounding frequency: Bank Astra offers deposits compounded annually, semi-annually, and…

A: Effective Annual Interest Rate refers to the concept which dictates the actual rate of interest…

Q: Month Zemin Corp. Market 1 5% 3% 2 2% 1% 3 -1% 1% 4 -2% -1% 5 4%…

A: CAPM: Capital asset pricing model The Capital Asset Pricing Model (CAPM) is a mathematical model…

Q: what amount must you pay if you pay within the discount period?

A: Credit term refers to a method used by the firms to encourage buyer or debtor to pay the amount of…

Q: retail coffee company is planning to open 105 new coffee outlets that are expected to generate $15.7…

A: NPV = Free Cashflow/( WACC - Growth)

Q: Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's…

A: Here, Required Platinum is 10,000 ounces Future Contract Rate is $950 per ounces Time Period of…

Q: Sally has a sum of $19000 that she invests at 7% compounded monthly. What equal monthly payments can…

A: Present value (P0) = $19000 Monthly interest rate (r) = 0.00583333333333333 (i.e. 0.07 / 12) Monthly…

Q: Discuss capital budgeting.

A: Financial capital is any economic resource measured in terms of money that entrepreneurs and…

Q: Find the effective rate of interest if the nominal rate is 12 % compounded bi - monhtly.

A: Annual Nominal interest rate = 0.12 Number of compounding in a year (n) = 6 (i.e. 12 months / 2) Bi…

Q: A type of bar chart used to display the data from a frequency distribution is called a histogram

A: Given statement A type of bar chart used to display the data from a frequency distribution is…

Q: If the asset turnover is 1.6, the financial leverage multiplier is 2.1, the return on asset is 25%…

A: The net profit margin can be calculated by combining return on assets and asset turnover

Q: After paying a 20% deposit on a $300,000 home, David and Kennah finance the rest of the home cost…

A: Solved using Financial Calculator PV = 256,228 N = 30 * 12 = 360 I/Y = 2.73/12 = 0.2275 CPT PMT =…

Q: The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $40,000. It had…

A: Net present value is the difference between the present value of cash inflows and present value of…

Q: 2. The Jones Company has just completed the third year of a five-year MACRS recovery period for a…

A: Book value is the value of an asset after depreciation is recorded on it. When an asset is sold,…

Q: A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells…

A: Data given: Current selling price of Gold per ounce= $2100 Company will bring 1400 ounces of Gold to…

Q: Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2018, it leased…

A: Here, Cost of the equipment = £480,000 Selling price of the equipment = £702,000 Interest rate =…

Q: The yield on a 5-year Treasury bond must exceed that on a 2-year Treasury bond.

A: Treasury bond refers to the securities that should be paid at a fixed rate of interest every six…

Q: Which one of the following bonds would you select if you thought market interest rates were going to…

A: Given: Particulars a b c Macaulay duration 7.16 11.37 6.87 Yield 7.61% 9.25% 5.87%

Q: Determine the range of the following set of values. 48 42 55 28 112 79 95 27 36 14 96 193 191

A: The range is basically the measure of dispersion. It is the dispersion which is equal to the…

Q: 1. In equity financing, the corporation is required to distribute dividends to its stockholders on a…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

Q: xplain the diff

A: A bond refers to the fixed income instrument which represents the loan made by an investor to the…

Q: BUS 038 : Business Computatns 4. You buy goods on an invoice dated October 28, with terms of 2/20,…

A: Receivable management is a part of financial management which focuses on the collection from trade…

Q: Identify the firm’s three major capital structure components and give their respective component…

A: To meet the financial requirements of the business, companies raise funds from external sources.…

Q: A stock is currently trading for $40 per share. The stock will pay no dividends. The annual…

A: Standard disclaimers “Since you have posted a question with multiple subparts, we will solve first…

Q: All techniques: Decision among mutually exclusive investments Pound Industries is attempting to…

A: To Find:- Payback period IRR Which project to select

Q: Comment on Stock Inspection?

A: A stock (also identified as equity) is a type of security that represents ownership of a portion of…

Q: What is the share price of the company's stock? (Do not round intermediate calculations and round…

A: Share Price: It represents the current value to the sellers and buyers which is dictated by demand…

Q: Pay equity is the same as: equal pay for work of equal value. equal pay for work in the same…

A: Pay equity attempts to equalize roles of similar values even though the nature of the two jobs may…

Q: Investor Matt has $152,000 to invest in bonds. Bond A yields an average of 9.2% and the bond B…

A: Here, To Find: Maximum return =?

Q: A payment of $3,160 was due three years ago, and a payment of $1,150 is due today. What single…

A: Money received today is worth more than money due at a later date, according to the time value of…

Q: You decide to make monthly payments into a retirement fund earning 4.75% compounded monthly. Note:…

A: Since you have asked a question with multiple questions, we will solve the first one for you. If you…

Concept explainers

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.

Question

D6) What are the determinants of Required Rate of Return. Explain the reasons of not shifting SML curve upward or downward even after changes occur in determinants of nominal Risk free rate?

Defintion Defintion Curve that represents the graphical relationship between the total supply of goods and services and the price level in the economy. When the price level increases, producers tend to supply more of a product in the market to earn a higher revenue or vice versa.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

1. Define the components of holding period return. Can any of these components be negative? 2. How do you understand an investment risk and what statistic tools can be used to measure it?
How is it possible to achieve a higher rate of return without significantlyincreasing risk?
Why is the T-bill’s return independent of the state of the economy? Do T-bills promise a completely risk-free return? Explain?
Which one of the following statements is correct? Group of answer choices The lower the average return, the greater the risk premium. The greater the volatility of returns, the greater the risk premium. The lower the volatility of returns, the greater the risk premium. The risk premium is not affected by the volatility of returns. The risk premium is unrelated to the average rate of return.
What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumed
Which one of the following is the formula that explains the relationship between the expected returnon a security and the level of that security's systematic risk?Select one:a. Time value of money equationb. Unsystematic risk equationc. Expected risk formulad. Market performance equatione. Capital asset pricing model
please quickly 11 The following is a correct statement concerning risk premium: A.The lower the average rate of return, the greater the risk premium B.The risk premium is not affected by the volatility of returns. C.The lower the volatility of returns, the greater the risk premium. D.The greater the volatility of returns, the greater the risk premium. E.The risk premium is not correlated to the average rate of return.
Explain whether you agree or disagree with the following statement: “The riskless interest rate is the real short-term interest rate that would prevail if there were no transitory financial disturbances.
Which of the following is true according to the pure expectations theory? Forward rates:a. Exclusively represent expected future short rates.b. Are biased estimates of market expectations.c. Always overestimate future short rates.
How does the expected rate of return concept differ from that of the realized rate of return?
Define the term Risk-free real return?
Which of the following statements about payback (payback period) is most correct? a. Payback is a measure of time breakeven. b. Payback is a rough measure of risk. c. Payback is a rough measure of liquidity. d. Both a. and b. are correct. e. Answers a., b., and c. are all correct.