Tutor profile: Carter H.
How do you calculate the Capital Asset Pricing Model (CAPM)?
CAPM is the required return on the equity portion of the cost of capital for a company. The return is calculated by adding the risk free rate (this is the 3 month treasury bill rate) to the risk premium times the beta of the stock. The risk premium is the market return minus the risk free rate, the equation is as follows: r = Rf + (Mr-Rf)beta
What is the difference between the quick and current ratio?
Both ratios are found on the balance sheet and both use the current assets and liabilities section. Although, the quick ratio leaves out current assets that are not as liquid as cash or cash equivalents. The quick ratio excludes inventories as selling your inventory quickly would be a difficult task without having to use a major discount on the goods.
If the U.S. dollar strengthens against foreign currencies, how will this effect trade for U.S. importers and exporters?
As the U.S. dollar strengthens that implies that importers now have more purchasing power for foreign goods denominated in foreign currencies that are weaker. In return, this allows U.S. importers to increase imports because the dollar can now buy more. It is the exact opposite for U.S. exporters, the weaker foreign currencies cannot buy as much U.S. goods because our dollar is stronger. In return, U.S. exporters will not export as many goods.
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