Business, 12.08.2019 21:20 SweetBriar

Schwimmer corp. has a beta of 1.5. the prevailing risk-free rate is 5 percent and the annual market return in recent years has been 11 percent. based on this information, the required rate of return on schwimmer corp. stock is percent.

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Answer from: chrisswid

The formula for casting off the desired rate of return is -

The required rate of return = Risk-free rate + Beta (Market return - Risk-free rate)

= 5% + 1.5 (11% - 5%)

= 5% + 1.5 (6%)

= 5% + 9%

= 14%

Further Explanation

The required rate of return is defined because the minimum rate of return that an investor will accept for holding a company's stock, as compensation for the danger which is related to that stock. this idea is additionally employed in finance, which with the assistance of this profitability of an investment project is analyzed.

The rate of return is obtained in the future, while the risk is defined as the uncertainty of the expected return.

The rate of return is an outcome obtained by an investor by investing his capital for a specified period of time and will get a certain amount of profit on that investment in the future.

Business risk is influenced by various factors, including: Variability of demand for company products. The more stable the company's product sales, assuming other things remain (ceteris paribus), the smaller the business risk. Selling price variability. The easier the selling price changes, the greater the business risk faced. Variability of input costs. The more uncertain the input costs, the greater the business risks faced. The ability to adjust the selling price when there is a change in input costs. The greater the company's ability to adjust sales prices with changes in costs, the smaller the business risk. The level of use of fixed costs (operating leverage). The higher the level of use of fixed costs, the greater the risk of the business.

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Risk-free rate

Business risk

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Grade: High School

Subject: Business

Keyword: risk, rate, business

Answer from: Quest

answer; limited pay life;

Answer from: Quest

Entrepreneur is a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.

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Schwimmer corp. has a beta of 1.5. the prevailing risk-free rate is 5 percent and the annual market...

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