Company Company A Company B Forecasted return 7% 11% Standard deviation of returns 8% 23% Beta 1 3 The market risk premium is 6% and the risk-free rate is 3%. Using Capital Asset Pricing Model (CAPM), will you invest in the companies

Answer and Explanation:

The computation is shown below:

As we know that

Required rate of return = Risk Free Rate +  Beta × (Market Return -Risk Free Rate)

For company A

= 3% + 1 × 6%

= 9%

For Company B

= 3% + 3  ×  6%

= 21%

As we can see that the forecast return should be lower than the required return so we should not invest in company A also the same is done in company B too

Therefore we dont invest in any of the company

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

a

explanation:

reducti0n

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