Explain why beta corporation is not necessarily more risky

Assignment Help Financial Management
Reference no: EM13914650

Suppose that the stock of Alpha Corporation has an expected return of 10 percent and a standard deviation of returns of 12 percent. The stock of Beta Corporation has an expected return of 10 percent and a standard deviation of 20%. Explain why Beta Corporation is not necessarily more risky than Alpha Corporation.

Reference no: EM13914650

Questions Cloud

Calculate the average rate of return and payback period : Junky Co. are considering a new project. Total revenue for the initial phase and the termination phase are expected to be 120K$ and 0K$ respectively. The operational phase will last five year and CFAT, and PAT for each year are expected to be 50K$ an..
How much would it be willing to lend the business owner : A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $1,500 per month for the next three years and then $500 per month for two years after that. If the bank is charging customers 8.5 percent APR, how ..
Compute the debt to assets ratio : Compute the debt to assets ratio to measure the level of financial risk of both companies. Compare the two ratios computed in Requirement a to identify which company has the higher level of financial risk.
What condition must exist before liability relate to lawsuit : According to the FASB, what conditions must exist before a liability related to a pending lawsuit can be entered in the accounting records?
Explain why beta corporation is not necessarily more risky : Suppose that the stock of Alpha Corporation has an expected return of 10 percent and a standard deviation of returns of 12 percent. The stock of Beta Corporation has an expected return of 10 percent and a standard deviation of 20%. Explain why Beta C..
Breakeven and sensitivity analysis : The goal of this exercise is to explore the trade-offs associated with the NPV of a solar collector project. The QFM for this project is: Development costs are $100K/qtr for Y1. Ramp-Up costs are 10K for Y1 Q4, 50K for Y2 Q1, and 5K for Y2 Q2. How wo..
What is cost to dealer of every customer who takes advantage : What is the cost to the dealer of every customer who takes advantage of this offer? If you could borrow money to buy a car from this dealer.
How many small jars and large jars were in his collection : Mr.Jackson had 40 cookie jars in his collection. He had 4 times as many large jars as small jars. How many small jars and large jars were in his collection
Use of images or graphics : Write a set of instructions using the techniques learned in this week's reading assignment. You can write instructions for an aspect of your job, a task that you do at home, or a hobby.

Reviews

Write a Review

Financial Management Questions & Answers

  What is split between initial and seasoned equity offerings

What are the general trends regarding public security issuance by U.S. corporations? Specifically, which security type is most often sold to the public? What is the split between initial and seasoned equity offerings?

  Determine the investors after-tax rate of return

An investor bought a racehorse for $1 million. The horse's average winnings were $700,000 per year, and expenses averaged $200,000 per year. The horse was retired after three years, at which time it was sold to a breeder for $175,000. Assume accelera..

  What is the firms cost of preferred stock

What sources of capital should be included when you estimate XYZ's WACC? and Should the component costs be estimated on a before or after-tax basis? Why?

  The arithmetic and geometric returns for the stock

A stock has had returns of 12 percent, 30 percent, 17 percent, −18 percent, 30 percent, and −7 percent over the last six years. What are the arithmetic and geometric returns for the stock?

  After tax cost of debt

Lawler's is considering a new project. The company has a debt-equity ratio of 0.72. The company's cost of equity is 15.1 percent, and the after tax cost of debt is 7.2 percent. The firm feels that the project is riskier than the company as a whole an..

  Discuss impact that medicaid cuts will have on krona revenue

Discuss the impact that the Medicaid cuts will have on Krona's revenue. Address the possible issues surrounding next year's forecasting. Provide an explanation of capitation.

  What is the compound average annual growth rate

Bunge paid $3.25 in dividends in the most recent past year, which is the same amount they have paid in the prior two years. Ten years ago, Bunge dividends were $1.50 per share. What is the compound average annual growth rate for Bunge dividends over ..

  What is the value of each warrant

Thomson Engineering is issuing new 10-year bonds that have 20 warrants attached. If not for the attached warrants, the bonds would carry a 9% interest rate. However, with the warrants attached the bonds will pay a 7% annual coupon and still sell for ..

  Company achieve without having to raise funds externally

Maggie's Muffins, Inc., generated $2,000,000 in sales during 2013, and its year-end total assets were $1,400,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..

  Project is expected to create operating cash flows

A project is expected to create operating cash flows of $22,500 a year for three years. The initial cost of the fixed assets is $50,000. These assets will be worthless at the end of the project. An additional $3,000 of net working capital will be req..

  What is present value of this cash flow pattern

You have been offered the opportunity to invest in a project that will pay $1,532 per year at the end of the years one through three and $11,071 per year at the end of years 4 and 5. If the appropriate discount rate is 18.88 percent per year, what is..

  What must the expected return on this stock be

A stock has a beta of 1.18, the expected return on the market is 11.2 percent, and the risk-free rate is 4.85 percent.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd