Performance-based options : The stock options for which compensation plans are based on the performance targets like divisional revenue, or sales revenue, or earnings per share, are referred to performance-based options. To indicate : The action to be taken in 2019, if the target of achieving 5% increase in divisional revenue is not probable

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Ch 02: Assignment - Risk and Return: Part I CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock Happy Corp.'s new required rate of return is An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Tool tip: Mouse over the points on the graph Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. RED RATE OF RETURN (Percent) 20.0 16.0 Value 2.0% 12.0 1.0 8.0 8.0% 7.7% 11.0% 12.1% 25.3% eir coordinates. O New SML

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Chapter 19, Problem 19.9BE

To determine

Performance-based options: The stock options for which compensation plans are based on the performance targets like divisional revenue, or sales revenue, or earnings per share, are referred to performance-based options.

To indicate: The action to be taken in 2019, if the target of achieving 5% increase in divisional revenue is not probable

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Ch 02: Assignment - Risk and Return: Part I CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock Happy Corp.'s new required rate of return is An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Tool tip: Mouse over the points on the graph Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. RED RATE OF RETURN (Percent) 20.0 16.0 Value 2.0% 12.0 1.0 8.0 8.0% 7.7% 11.0% 12.1% 25.3% eir coordinates. O New SML

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