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Over a certain period, large-company stocks had an average return of 12.14 percent, the average risk-free rate was 2.49 percent, and small-company stocks averaged 17.09 percent. What was the risk premium on small-company stocks for this period?a. 9.93%
b. 19.39%
c. 14.81%
d. 11.85%
e. 4.88%

Answers

Answer 1

Answer:

Answer:

14.6 percent

Explanation:

Data provided in the question

The average return of large-company stock = 12.14 percent

The average risk-free rate of return = 2.49 percent

The average return of small-company stock = 17.09 percent

By considering the above information, the risk premium is

= Average return of small-company stock - Average risk-free rate of return

= 17.09 percent - 2.49 percent

= 14.6 percent

This is the answer but the same is not provided in the given options

We simply deduct the risk-free rate of return from the market return so that the risk premium could come

Related Questions

Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 50,000 of these balls, with the following results:_______. Sales (50,000 balls) $ 1,250,000 Variable expenses 750,000 Contribution margin 500,000 Fixed expenses 320,000 Net operating income $ 180,000Required: 1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls? 3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $202,000, as last year? 4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs? 5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls? 6. Refer to the data in (5) above. a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $202,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 37,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.
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If the government wants to reduce GDP by $500 million, the most appropriate action is: contractionary fiscal policy, which includes a reduction in government spending by $500 million. contractionary fiscal policy, which includes a reduction in government spending by more than $500 million. contractionary fiscal policy, which includes a reduction in government spending by less than $500 million. expansionary fiscal policy, which includes an increase in government spending by $500 million. expansionary fiscal policy, which includes an increase in government spending by more than $500 million. expansionary fiscal policy, which includes an increase in government spending by less than $500 million.

Inflation is 14 percent. Debt is $4 trillion. The nominal deficit is $360 billion. What is the real deficit or surplus

Answers

Answer:

Real Surplus is $200 billion

Explanation:

Inflation = 14%

Debt = $4 trillion = $4,000 billion

Nominal deficit = $360 billion

Real Deficit = Nominal deficit - (Inflation*Debt)

= $360 - 14% * 4,000

= $360 - 560

= -$200

Hence, the answer is Real Surplus of $200 billion

The bottom-up approach for estimating times and costs that uses costs from past projects that were similar to the current project is known as

Answers

Answer: template method

Explanation:

The bottom-up approach for estimating times and costs that uses costs from past projects that were similar to the current project is known as template method.

It should be noted that estimating time and cost are vital because it helps schedule work, develop needs of cash flow and show progress of a project.

Final answer:

The bottom-up approach for estimating costs and times using information from similar past projects is called analogous estimating. This method, used in project management, relies on previous experience and expert judgment.

Explanation:

The method you're referring to is the analogous estimating. In project management, analogous estimating is a technique for estimating the duration or cost of an activity or a project using historical data from a similar activity or project. This bottom-up approach is most reliable when the previous activities are similar in fact and not just in appearance to the current activity. This technique relies heavily on experience, expert judgment, and the project history to predict costs and timelines for a new project.

Learn more about Analogous Estimating here:

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The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2018 to Saxton-Bose Corporation. The bonds mature on December 31, 2027 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Determine the price of the bonds at Janary 1 2018.

Answers

Answer:

The price of the bonds at Janary 1 2018 is $70,824,063

Explanation:

Data:

Face Amount = F = $80,000,000

Time = n = 10 years * 2 (semiannually) = 20 semesters

Yield = r = 12% / 2 (semiannually) = 6% = 0.06

Payment = C = $80,000,000 * 10% / 2 = $4,000,000

Computation:

Bond Price = (C * (1 - (1 + r)^-n) / r) + (F / (1 + r)^n)

Bond Price = ($4,000,000 * (1 - (1 + 0.06)^-20) / 0.06) + ($80,000,000 / (1 + 0.06)^20)

Bond Price = ($4,000,000 * 11.46992) + $24,944,378.15089

Bond Price = $45,879,684.87426 + $24,944,378.15089

Bond Price = $70,824,063

Hope this helps!

The Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $95. What is this company's current price-earnings ratio?

Answers

Answer:

Price earnings ratio = 19 times.

Explanation:

Price earning ratio is calculated as for the common equity, as the earnings on preference share is fixed.

Accordingly, the earnings for equity = Net income - preference dividend = $112,000 - $12,000 = $100,000

Number of shares outstanding = 20,000

Earnings per share = $100,000/20,000 = $5 per share.

Selling price of the share = $95

Thus, price earnings ratio = $95/$5 = 19 times.

This reflects that the 19 times of earnings is the price of share.

What is an example of a secured credit?

Answers

An example of a secured credit is home mortgage or a car loan.

Credit refers to the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.

When any loan is secured, the lender has established a lien against an asset that belongs to the borrower. With mortgages and car loans, the house or car can be seized and liquidated by the lender in the event of default.

Therefore, one example of a secured credit is home mortgage or a car loan.

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Answer: C: Mortgage

Explanation:

A common example of a secured line of credit is a home mortgage or a car loan. When any loan is secured, the lender has established a lien against an asset that belongs to the borrower. With mortgages and car loans, the house or car can be seized and liquidated by the lender in the event of default.

The vice president of marketing tells a marketing manager to prepare a presentation by the end of the week. The vice president is most likely exercising which of the following? staff authority line authority functional authority procedural authority

Answers

Answer:

Line Authority

Explanation:

Line authority refers to the power or authority assigned to individuals of supervisory position so as to direct and initiate employees to action in a desired manner, with the purpose of accomplishment of organizational goals and objectives.

For example, production manager may exercise line authority and supervise and direct production activities and subordinates.

In the given case, the vice president(VP) of a department i.e marketing tells marketing manager to prepare a presentation by the end of the week. Here, the VP is exercising his line authority, thereby supervising and directing the subordinates towards an action, carried out in organizational interest.