Complete Question:
A price-discriminating monopolist having identical costs in two markets should charge a higher price in that market:
Group of answer choices.
A. which has a higher demand.
B. which has a more elastic demand.
C. which has a less elastic demand.
D. which has a higher marginal revenue.
Answer:
C. which has a less elastic demand.
Explanation:
In competitive marketing, a price-discriminating monopolist is any individual or business entity which charges various customers different prices for its finished products or services, even though the products are similar, identical or homogeneous in nature and there cost of production is the same.
A price-discriminating monopolist having identical costs in two markets should charge a higher price in that market which has a less elastic demand because there are no close substitutes or alternatives for the goods and services.
For instance, if there's a gasoline or fuel hike in a particular state, a price-discriminating monopolist would charge higher price because gasoline or fuel is inelastic in the short-run or has a less elastic demand at the time.
A firm issues $300 million in straight bonds at an original issue discount of 0.50% and a coupon rate of 7%. The firm pays fees of 2.0% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is closest to which of the following?
A)$248,625,000
B)$263,250,000
C)$277,875,000
D)$292,500,000
Answer: $292,500,000
Explanation:
The following information can be derived from the question:
Issued bond = $300
Issue discount = 0.50%
Coupon rate = 7%.
Fees paid = 2.0%
The net amount of funds that the debt issue will provide for the firm will be:
= Issued bond price - Discount - Fees paid
= $300m - ($300m × 0.50%) - ($300m × 2.0%)
= $300m - $1.5m - $6m
= $300m - $7.5m
= $292.5 Million
Consider the relative liquidity of the following assets:
Assets
1. The funds in a money market account
2. A $5 bill
3. A share in a publicly traded company
4. Your house
Select the assets in order of their liquidity, from most liquid to least liquid.
Most Liquid
Second-Most Liquid
Third-Most Liquid
Least Liquid
Answer:
Liquidity of an asset refers to how easily convertible the asset is to cash or so called liquid money.
Most Liquid - A $5 bill
This is already cash so it is the most liquid there is.
Second-Most Liquid - The funds in a money market account
Funds in a money market account are the second most liquid because most often they can simply be withdrawn from the fund. There might be limits on the number of withdrawals allowed though within a period.
Third-Most Liquid - A share in a publicly traded company
A share in a publicly trade company ranks here because to realize the cash, one would need to sell the share first.
Least Liquid - Your house
Your house will be the most difficult of these to liquidate as it will involve a much longer process to eventually get it sold and realize cash. The process will include but will not be limited to, advertising, hiring realtors, inspection etc.
The issue of _____ concerns how often a particular project will be repeated and what its lifespan will be.
Full question reads;
The issue of _____ concerns how often a particular project will be repeated and what its lifespan will be.
a. frequency
b. consumption
c. pressures
d. rules
Answer:
a. frequency
Explanation:
Indeed, no particular human project can last forever, so there is a need to ascertain the frequency of a project, detailing how often the project would be repeated so as to also determine what the project's lifespan will be.
For example, a road construction project may take into account how often the road would be used, which provides insight into the frequency of road repairs and the overall lifetime of the car.
The issue of _____ concerns how often a particular project will be repeated and what its lifespan will be.
You have just been instructed to develop a schedule for introducing a new product into the marketplace. Below are the elements that must appear in your schedule. Arrange these elements into a work breakdown structure (down through level 3), and then draw the arrow diagram. You may feel free to add additional topics as necessary.1. Production layout2. Market testing3. Review plant cost4. Select distributors5. Analyze selling cost6. Analyze customer reactions7. Storage and shipping cost8. Select salespeople9. Training salespeople10. Trained distributors
Answer:
Attached below is the arrangement of these elements with additional topics and arrow diagram
Explanation:
The given Elements are : Production layout , market testing , Review plant cost, select distributors, Analyze selling cost, Analyse customer reactions, storage and shipping cost, select salespeople, training sales people, trained distributors. including additional topics as well
On January 1, a company issued and sold a $300,000, 5%, 10-year bond payable, and received proceeds of $293,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is:
Answer: $293,350
Explanation:
The carrying value of the bonds immediately after the first interest payment will be the addition of the received proceed and the ammortized discount. This will be:
= $293,000 + $350
= $293,350
Note that the ammortized discount was calculated as:
= ($300000 - $293000)/20
= $7000/20
= $350
Current cost to source from the home plant to Country A is $0.55 per unit, plus $0.02 in shipping (there is no tariff). If product is sourced from Country B, manufacturing cost is expected to be 20% lower; but shipping will increase to $0.06, and there is a tariff of 15% on CIF. What will the savings be on 100 million units if sourcing for Country A switches from the home plant to Country B
Answer:
Cost savings in sourcing from Country A = $0.5 million ($57.5 - $57 million)
Explanation:
Sourcing from Country A:
Purchase price = $0.55 per unit
Shipping = $0.02
Total Cost = $0.57
Cost of 100 million units = $57 million
Sourcing from Country B:
Purchasing price = $0.44 ($0.55 x 80%)
Shipping = $0.06
CIF Tariff = 15% = $0.075 ($0.5 x 15%)
Total Cost = $0.575
Cost of 100 million units = $57.5 million
Sourcing from Country A is more beneficial than sourcing from Country B with reduced product cost, but increased shipping and additional tariff. Whereas Country A gives a total cost for 100 million units of $57 million, sourcing the same units from Country B gives a total cost of $57.5 million. The savings of $0.5 million is substantial that no company would like to lose unless the goods from Country B are of higher quality than those from Country A.
Assume Division 1 of the XYZ Company had the following results last year. Sales $5,000,000 Operating income 1,000,000 Total assets (average) 10,000,000 Current liabilities 500,000 Management's required rate of return is 8% and the weighted average cost of capital is 6%. Its effective tax rate is 30%. What is the division's economic value added?
Answer:
Economic Value was $130,000
Explanation:
As we know that:
Economic Value Added = Net Operating Income after tax - (WACC * Capital Employed)
Here
Operating Income After Tax is $700,000 (Step1)
WACC is 6%
Capital Employed is $9,500,000 (Step2)
By putting values, we have:
EVA = $700,000 - 9,500,000 * 6%
EVA = $700,000 - $570,000
EVA = $130,000
Step1: Operating Income After Tax
Simply deduct the 30% tax share from the operating income to arise at Net Operating Income After Tax.
Mathematically,
Net Operating Income After Taxes = Operating Income *(1 - Tax Rate)
Here
Operating Income is $1,000,000
Tax Rate is 30%
By putting values, we have:
Net Operating Income After Taxes = $1,000,000 * (1 - 30%)
Net Operating Income After Taxes = $700,000
Step2: Capital Employed
Capital Employed = Total Assets - Current Liabilities
Capital Employed = $10,000,000 - $500,000
Capital Employed = $9,500,000
Suppose Rocky Brands has earnings per share of $2.33 and EBITDA of $29.3 million. The firm also has 5.3 million shares outstanding and debt of $125 million (net of cash). You believe Jared's Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Jared's has no debt. If Jared's has a P/E of 12.9 and an enterprise value to EBITDA multiple of 7.1, estimate the Enterprise Value of Rocky Brands by using both multiples. Which estimate is likely to be more accurate?
Answer:
enterprise value to EBITDA.
Explanation:
The computation of the value of the stock using P/E ratio is shown below:-
Stock value = (P/E ratio × EPS) × Number of shares outstanding
= (12.9 × $2.33) × 5.3 million
= 159.3021 million
Now, the computation of the value of the stock using EBITDA multiple is shown below:-
Stock value = (EBITDA multiple × EBITDA) - Net debt
= (7.1 × $29.3 million) - $125 million
= 208.03 - $125 million
= 83.03
There is no equivalent corporate debt. It is easier to make a comparison at the operating level and thus a better measure of valuation is the enterprise value to EBITDA.
Additional short-term borrowings $ 20,000
Purchase of short-term investments 5,000
Cash dividends paid 16,000
Interest paid 8,000
Compute cash flows from financing activities using the above company information. (Amounts to be deducted should be indicated by a minus sign.)
Answer:
Cash flow from from financing activities = $(4,000)
Explanation:
The cash flow from financing activities includes that entails any or a combination of the following; issuance and redemption of stocks , issuance and redemption of debts and payment of interest and/or dividend, and receipt of dividend and or interest.
Kindly note that the purchase of short term investment is not a financing activity but rather an investing activity
Cash flow $
Short term borrowing 20,000
Cash dividend paid (16,000)
Interest paid (8,000)
Total Cash flow (4000)
Cash flow from from financing activities = $(4,000)
For the coming year, Belton Company estimates fixed costs of $60,000, the unit variable cost of $25, and the unit selling price of $50.
a. Determine the break-even point in units of sales.
b. Determine the unit sales required to realize operating income of $100,000.
c. Determine the probable operating income if sales total $400,000.
Answer:
1. Break even point in units = 2,400 units
2. Sales required = 6,400 units
3. Operating income = $140,000
Explanation:
Given:
Fixed costs = $60,000
Variable cost =$25 per unit
Selling price = $50 per unit
Computation:
1. Break-even point in units of sales.
Contribution per unit = sales - VC
Contribution per unit = $50 - $25
Contribution per unit = $25
Break even point in units = Fixed costs / Contribution per unit
Break even point in units = $60,000 / $25
Break even point in units = 2400 units
2. Unit sales required to realize operating income = $100,000
Sales required = (Fixed costs + Operating income) / Contribution per unit
Sales required = ($60,000 + $100,000) / $25
Sales required = 6400 units
3. Operating income if sales total = $400,000
Contribution margin = [$25/ $50]100 = 50%
Operating income = Contribution margin - Fixed costs
Operating income = ($400,000 × 50%) - $60,000
Operating income = $140,000
why must we always boil our drinking water during and after a cyclone has passed
Answer:
Sometimes following a disaster, a boil water alert is issued for areas connected to mains scheme water because the mains water may be unsafe to drink or cook with.
If a boil water alert has been issued, it is essential you follow this warning to prevent illness.
To prepare water for drinking and food preparation, you should heat the water to a rolling boil for at least 1 minute using a stove or kettle and then allow it to cool. This will help to kill any bacteria.
Be sure to keep children clear from any boiling water until the water has cooled down to room temperature.
Once it has cooled it should be placed in the fridge in a clean container with a lid.
Under no circumstances should you drink or cook with water that has not been boiled until the alert is lifted.
Alternatively you can use bottled water.
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Southtown Realty has entered into agency agreements with Sara, a seller and Tom, a buyer. Tom wants to make an offer on Sara’s home. Is this possible?
Answer: Yes it's possible as long as Tom and Sara gives a written consent to the dual agency arrangement.
Explanation:
From the question, we are informed that Southtown Realty has entered into agency agreements with Sara, a seller and Tom, a buyer. Tom wants to make an offer on Sara’s home.
This is possible as long as Tom and Sara gives a written consent to the dual agency arrangement.
If an applicant is not hired because the applicant has previously claimed overtime which they were owed, they are likely to be covered under the
Answer: Fair Labor Standards Act
Explanation:
The Fair Labor Act which is enforced by the US Department of Labor is meant to govern issues of remuneration in labor such as minimum wages and overtime pay. This Act applies to private workers at the Federal, State and Local levels of Government.
This Act stipulates that Overtime should be paid to an employee with certain conditions attached and if those conditions are fulfilled, the company ought to pay the employee that Overtime. If the Employee demands their overtime and is subsequently treated unfairly in hiring, the Department of Labor will be able to protect the Employee under this Act.
If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs. a. These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver. b. These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower. c. These purchases are called consumption. If you raise the funds to purchase them from others you are a saver. d. These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower.
Answer:
The answer is B.
Explanation:
Capital is what is used to start a business. It is what the owner's contribution in the business. In advanced class, it is called stock or equity. Capital is usually from the owner's savings. But if this money is borrowed either from an individual or a bank, the person is a borrower while the other party is the lender.
Option A is incorrect because money raised from someone makes the person borrowing a borrower and not a saver.
Option C and D are incorrect because the items needed for the business are not consumables, they are needed for the smooth running of the business, hence they are not consumption.
Blossom Street Inc. makes unfinished bookcases that it sells for $57. Production costs are $37 variable and $10 fixed. Because it has unused capacity, Blossom Street is considering finishing the bookcases and selling them for $70. Variable finishing costs are expected to be $6 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Blossom Street should sell unfinished or finished bookcases. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Answer and Explanation:
The Preparation of an analysis on a per unit basis is shown below:-
Particulars Sell unfinished Sell finished Increase/Decrease
bookcases bookcases in income
Sale price per
unit $57 $70 $13
Less: variable cost
per unit $37 $43 $6
($37 + $6)
Les: fixed cost per
unit $10 $10 $0
Total cost per
unit $47 $53 $6
Net income per
unit $10 $17 $7
Therefore, Unfinished bookcases are further processed, as net profit per unit increases further by processing by $7
Quality improvement teams are groups of people from various work areas who define, analyze, and solve common production problems.
a. True
b. False
Answer: True
Explanation:
The quality improvement teams are groups of employees that are from various departments who come together and meet regularly in order to define, analyze, and then solve common production problems.
The aim of the quality improvement team is to improve the production process. This is achievable by them working on their methods.
Moorcroft sales are 40% cash and 60% credit. Credit sales are collected 20% in the month of sale, 50% in the month following sale, and 26% in the second month following sale; 4% are uncollectible. Moorcroft purchases are 50% cash and 50% on account. Purchases on account are paid 40% in the month following the purchase and 60% in the second month following the purchase.Prepare a schedule of expected collections from customers for June.
Answer:
The budgeted sales are missing, so I looked for them. I found the following question, hopefully it will be similar:
Month Sales
April $300,000
May $320,000
June $370,000
Schedule of expected collections
For the month of June, 202x
Cash sales during June = $370,000 x 40% = $148,000
Collection from June's credit sales = $222,000 x 20% = $44,400
Collection from May's credit sales = $192,000 x 50% = $96,000
Collection from April's credit sales = $180,000 x 26% = $46,800
Total cash collections during June = $335,200
If it is determined that your procurement scenario will not be conducted using full and open competition you are prohibited from purchasing a non-domestic product.
A. True
B. False
Answer:
Correct answer:
A. True
Explanation:
When procurement of goods and services is to be made from another country, it is expected that, it should be open and done in full view showing other competitors. This is to prevent fraud, such as the marking up of the price of goods or outright false declaration of the procurement prices.
Suppose you invest equal amounts in a portfolio with an expected return of 16% and a standard deviation of returns of 18% and a risk-free asset with an interest rate of 4%. Calculate the expected return on the resulting portfolio. Group of answer choices
Answer: 10%
Explanation:
You invest equal amounts in a portfolio yielding 16% and a risk-free asset yielding 4%.
The expected return will be a weighted average of these two;
= (Weight of the Portfolio * Portfolio return) + (Weight of the Portfolio * risk-free rate)
= (0.5 * 16%) + (0.5 * 4%)
= 8% + 2%
= 10%
Alexander has been accepted as a freshman at a college two hundred miles from his home for the fall semester. Alexander's wealthy uncle, Michael, decides to give Alexander a car for Christmas. In November, Michael makes a contract with Jackson Auto Sales to purchase a new car for $18,000 to be delivered to Alexander just before the Christmas holidays, in mid-December. The title to the car is to be in Alexander's name. Michael pays the full purchase price, calls Alexander and tells him about the gift, and takes off for a six-month vacation in Europe. Is Alexander an intended third party beneficiary of the contract between Michael and Jackson Auto Sales
Answer:
Yes.
Alexander is an intended third party beneficiary of the contract between Michael and Jackson Auto Sales.
Explanation:
In the law of contracts, Alexander becomes a third-party beneficiary of the contract between Michael and Jackson Auto Sales, and he has the right to sue in the contract notwithstanding that he was not an active party to the contract. Some of the factors that may be present to show that a Alexander is an intended beneficiary are: (1) the contract's performance is rendered directly to Alexander; (2) Alexander has rights to control the details of the performance; or (3) there is an express designation in the contract, e.g. the title to the car is in Alexander's name.
Net present value method The following data are accumulated by Geddes Company in evaluating the purchase of $160,000 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $43,500 $83,500 Year 2 23,000 63,000 Year 3 13,500 53,500 Year 4 6,500 46,500 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Assuming that the desired rate of return is 12%, determine the net present value for the proposal. If required, round to the nearest dollar. Net present value $ 86,500 Would management be likely to look with favor on the proposal
Answer:
A.$32,396
B. Yes
Explanation
A. Calculation to determine the net present value for the proposal
Year Net Cash Flow Present value Discounting factor at 12% Discounted Cash Flow
1 $ 83,500.00 0.893 $ 74,565.50
2 $63,000.00 0.797 $ 50,211.00
3 $ 53,500.00 0.713 $ 38,145.50
4 $ 46,500.00 0.636 $ 29,574.00
Present value of net cash flows $ 192,496.00
Amount to be invested $ 160,000.00
Net Present Value $ 32,496
Net Present Value $ 32,496/Amount to be invested $160,000.00 =0.2031*100
=20.31%
B.Yes the management would likely to look with favor on the proposal because the net present value of 20.31% is higher than the expected rate of return of 12%.
Jenny Corp. needs to raise $53 million to fund a new project. The company will sell shares at a price of $29.00 in a general cash offer and the company's underwriters will charge a spread of 7.5 percent. The direct flotation costs associated with the issue are $925,000. How many shares need to be sold?
Answer:
2,010,252 Shares
Explanation:
The funds that are to be raised = $53,000,000
Spread = 7.5%
Share price = $29.00
Flotation cost with issue = 925,000
We have that:
(53000000+925000)/92.5 * 100
(539,250,000/92.5)x100
= $58297.973 x 100
= $58297297.3
The offer per share is placed at $29.00
So to get the number of shares sold:
$58297297.3 / $29.00
= 2,010,252 shares are to be sold.
Problem 24-01 Liquidation Southwestern Wear Inc. has the following balance sheet: Current assets $1,875,000 Accounts payable $375,000 Fixed assets 1,875,000 Notes payable 750,000 Subordinated debentures 750,000 Total debt $1,875,000 Common equity 1,875,000 Total assets $3,750,000 Total liabilities and equity $3,750,000 The trustee's costs total $276,250, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $4 million is received from sale of the assets? Distribution of proceeds on liquidation: 1. Proceeds from sale of assets $ 2. First mortgage, paid from sale of assets $ 3. Fees and expenses of administration of bankruptcy $ 4. Wages due workers earned within 3 months prior to filing of bankruptcy petition $ 5. Taxes $ 6. Unfunded pension liabilities $ 7. Available to general creditors $ Distribution to general creditors: Claims of General Creditors Claim (1) Application of 100% Distribution (2) After Subordination Adjustment (3) Percentage of Original Claims Received (4) Notes payable $ $ $ % Accounts payable $ $ $ % Subordinated debentures $ $ $ % Total $ $ $ The remaining $ will go to the common stockholders.
Answer:
1. Proceeds from sale of assets $ 4,000,000
2. First mortgage, paid from sale of assets 0.00
3. Fees and expenses of administration of bankruptcy 276,250
4. Wages due workers earned within 3 months prior to filing of bankruptcy petition 0.00
5. Taxes 0.0
6. Unfunded pension liabilities 0.00
7. Available to general creditors $3,723,750
Distribution to general creditors
Claim (1) =$1,875,000
Application of 100% Distribution(2)=$1,875,000
After Subordination Adjustment
(3)=$1,875,000
Percentage of Original Claims Received
(4)=$1,875,000
Explanation:
Calculation for how much will each class of investors receive if a total of $4 million is received from sale of the assets
1. Proceeds from sale of assets $ 4,000,000
2. First mortgage, paid from sale of assets 0.00
3. Fees and expenses of administration of bankruptcy 276,250
4. Wages due workers earned within 3 months prior to filing of bankruptcy petition 0.00
5. Taxes 0.00
6. Unfunded pension liabilities 0.00
7. Available to general creditors $3,723,750
Distribution to general creditors:
Claims of General Creditors
Notes payable
Claim (1) 750,000
Application of 100% Distribution
(2) 750,000
After Subordination Adjustment
(3) 750,000
Percentage of Original Claims Received
(4) 100%
Accounts payable
Claim (1) 375,000
Application of 100% Distribution
(2) 375,000
After Subordination Adjustment
(3) 375,000
Percentage of Original Claims Received
(4) 100%
Subordinated debentures
Claim (1) 750,000
Application of 100% Distribution
(2) 750,000
After Subordination Adjustment
(3) 750,000
Percentage of Original Claims Received
(4) 100%
TOTAL
Claim (1) $750,000+ 375,000+750,000=$1,875,000
Application of 100% Distribution
(2)$750,000+ 375,000+750,000=$1,875,000
After Subordination Adjustment
(3)$750,000+ 375,000+750,000=$1,875,000
Percentage of Original Claims Received
(4)$750,000+ 375,000+750,000=$1,875,000
A company uses 40000 pounds of materials for which it paid $2 a pound. The materials price variance was $20000 unfavorable. What is the standard price per pound
Answer:
Standard price= $1.5
Explanation:
Giving the following information:
A company uses 40000 pounds of materials for which it paid $2 a pound. The materials price variance was $20000 unfavorable.
To calculate the standard price, we need to use the following formula:
Direct material price variance= (standard price - actual price)*actual quantity
-20,000= (standard price - 2)*40,000
-20,000= 40,000standard price - 80,000
60,000/40,000= standard price
standard price= $1.5
The following data has been collected about Keller Company's stockholders' equity accounts: Common stock $10 par value 21,000 shares authorized and 10,500 shares issued, 1,100 shares outstanding $105,000 Paid-in capital in excess of par value, common stock 51,000 Retained earnings 26,000 Treasury stock 12,760 Assuming the treasury shares were all purchased at the same price, the number of shares of treasury stock is:
Answer:
9,400 shares
Explanation:
Treasury stock is the difference between issued shares and outstanding shares.
Number of treasure shares = Number of issued shares - Number of outstanding shares
Number of treasure shares = 10,500 - 1,100
Number of treasure shares = 9,400 shares
Therefore, number of treasury shares is 9,400
You are planning to save for retirement over the next 30 years. To do this, you will invest $900 a month in a stock account and $600 a month in a bond account. The return of the stock account is expected to be 8 percent, and the bond account will pay 5 percent. When you retire, you will combine your money into an account with a return of 6 percent. How much can you withdraw each month from your account assuming a 15-year withdrawal period
Answer:
$15,533.69
Explanation:
the future value of your stock account = $900 x 1,490.48048 (FV annuity factor, 0.6667%, 360 periods) = $1,341,432.43
the future value of your bond account = $600 x 832.32019 (FV annuity factor, 0.4167%, 360 periods) = $499,392.11
after 30 years, the balance of your 2 accounts = $1,840,824.54
the monthly withdrawal = $1,840,824.54 / 118.50531 (PV annuity factor, 0.5%, 180 periods) = $15,533.69
"A husband and wife wish to open an account that allows either party to trade or draw checks; and that becomes the property of the surviving spouse if one should die. The proper ownership form is:"
Answer:
Joint Tenants with Rights of Survivorship
Explanation:
The property ownership form that is being mentioned in the question is known as Joint Tenants with Rights of Survivorship . As described, this is when two individuals share equal ownership of the property and have the equal, undivided right to keep or dispose of the property. Rights of Survivorship means that if one of the individual joint tenants dies then their ownership of the property does not pass on to the next of kin but instead is passed to the other joint tenant that is the beneficiary.
Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy slips into recession, and the government decides to increase government spending by $50 billion. The government must pay for this by borrowing; it must sell $50 billion worth of Treasury bonds. As a result: Group of answer choices
Answer: b. be in deficit by at least $50 billion.
Explanation:
The Government budget had been balanced but it will now have to spend $50 billion more than it is making. This will mean that Government expenditure will rise by $50 billion over the tax revenue which will lead to a deficit of the same amount.
These are bonds however meaning that the Government would have to pay interest on the $50 billion. This will push the deficit owed to over $50 billion meaning that the Government would be in deficit of at least $50 billion.
If an investor's aversion to risk increased, would the risk premium on a high beta stock increase by more or less than that of a low-beta stock? Explain.
Answer:
risk premium increases by more of the low - beta stock
A risk averse investor is an investor that avoids risk. if risk aversion increases, it means that the investor is more wary of risky investment.
Beta measures the volatility of a portfolio. the higher the volatility, the more risky the portfolio is.
risk premium measures the rate of return in excess of the risk free rate.
According to CAPM :
risk free rate + (beta x stock risk premium)
Beta is a multiplier of stock risk premium, so the higher the beta, the more there would be an increase in the stock risk premium
If a risk averse investor invests in a high beta stock, he would want extra or higher compensation for holding such a volatile stock. this extra compensation would be in the form of a higher risk premium.
Explanation:
Suppose the firms in a perfectly competitive industry merge to form a monopoly. Which of the following would NOT occur?
a. A rise in total consumer plus producer surplus
b. A deadweight loss
c. A rise in producer surplus
d. A fall in consumer surplus
Answer: a. A rise in total consumer plus producer surplus
Explanation:
When a Monopoly is formed, the Producer surplus will increase but the Consumer surplus will decrease. This is because a Monopoly will charge a higher price than a Competitive firm to get more profit as well reduce output as well.
This will result in the transfer of some Consumer surplus to the Producer as well as a Dead-weight loss being formed thereby reducing the Consumer surplus. The total surplus will therefore fall as a result of this merger.
