What are the advantages and disadvantages of free trade? From an economic point of view, is free trade better than limited or no trade? Have you benefited from free trade? how?
How is the economy impacted by trade? With countries like China or Brazil growing fast, should the U.S. promote more free trade agreements?© BrainMass Inc. brainmass.com October 17, 2018, 12:28 pm ad1c9bdddf
The advantage of free trade is very obvious because it promotes economic efficiency. Resources from all countries are used efficiently and eventually all citizen of the world will benefit from that. Countries should focus on producing products that they are having cost advantage of producing them and import other products that they don't have cost advantage. Cost advantages position can be due to natural factor endowment or acquired through technology.
However, free trade can also be disadvantageous for certain countries. For example, some countries are ...
In the long run, all countries will benefit from free trade. However, in the short run some economies may suffer initially before benefiting from free trade. Therefore, the best strategy is to allow for partial trade while migrating towards a totally free trade economy.
Calculate the Required Return of the Bank Ltd. and Trade Ltd. Calculate the beta for this company. What is required return? Calculate the portfolio's standard deviation? How can you obtain 17 percent portfolio return by investing exclusively in Trade Ltd? What would be the percentage change in the return on the stock, if the return on an average stock increased by 40 percent while the risk-free rate remained unchanged?
1. The shares of the following three companies have been included in the portfolio:
Required Return in Accordance with Systematic Risk Standard Deviation of Returns Beta
Bank Ltd. ? 20 1.2
Trade Ltd. ? 30 0.8
ALD Ltd. ? 25 ?
Market Portfolio 12 16 ?
Risk free 5 0 -
a) Calculate the Required Return of the Bank Ltd. and Trade Ltd. Are they adequately priced with respect to the forecasted return? If the forecasted return for Bank Ltd. is 15 % and for Trade Ltd. 9% what would be the best optimal decision of the portfolio manager, i.e. for which shares it would be appropriate to increase, reduce or retain the same weights in a portfolio?
b) ALD Ltd has jus paid out the $2.00 dividend that is expected to grow at 5 percent forever. The share price is $20.00. Calculate the beta for this company. What is required return?
c) You have decided to form a portfolio with the following weights: 50 percent Bank Ltd (B), 23 percent Trade Ltd. (T) and 27 percent ALD Ltd. (ALD). Also, cov (rb, rt)= -0.03 and correlation of T,ALD= 0.5 . Calculate the portfolio's standard deviation?
d) How can you obtain 17 percent portfolio return by investing exclusively in Trade Ltd? Show calculation.
e) What is the beta for this new portfolio comprising just one share?
2. You are holding a stock that has a beta of 1.8 and is currently in equilibrium. The required return on the stock is 15 percent, and the return on an average stock is 10 percent. What would be the percentage change in the return on the stock, if the return on an average stock increased by 40 percent while the risk-free rate remained unchanged?
3. Discuss the recent trend of a decline in the number of companies that pay out dividends. What are the return components for a potential investor and how does this change affect return components?
4. What are the main assumptions about the prevailing investor risk perception in finance? It this pattern easily confirmed in the market? What are the reasons for this deviation (if any)?
5. Comment whether you agree with the following statement: "Going public establishes a true market value for the firm and ensures that a liquid market will always exist for the firm's shares."View Full Posting Details